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Facing a Long-Term Job Loss?

Here’s what you need to do to keep your finances on track.

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Over the past several months, millions of people have been laid off—either temporarily or permanently—as a result of COVID-19. Unemployment has hit the Houston area particularly hard, as there are many who work in the energy industry and for the United Airlines Houston hub.

As the coronavirus crisis continues to impact our daily lives, there are many people who will have no job to go back to, even after a vaccine has been developed.

Losing a job can be a traumatic experience, and not just from a financial standpoint. The loss of a regular paycheck can be just the tip of the iceberg, since many people define themselves in large part by their careers.

For instance, when you leave a job, it could also mean that you will soon lose your health insurance benefits, as well as the ability to continue making contributions into an employer-sponsored retirement plan (such as a 401k) that may include employer matching contributions.

Even worse, if you don’t have an emergency fund in place, you may have to start dipping into your savings just to pay your monthly living expenses. So a current job layoff can have quite a negative impact on your future retirement savings and lifestyle.

Financial and Insurance Options

Stepping away from your employer (whether it’s permanently or temporarily) can mean having to make some important financial and insurance-related decisions. These will typically revolve around income, financial protection, and ongoing expenses.

Income

Since the loss of a job means losing some or all of your household’s incoming cash flow, it is essential to determine where you can access funds to pay your bills until you are gainfully employed again. Possible options for incoming funds include:

• Unemployment benefits

• A severance, if applicable

• Interest or dividends from your investments

• Potential tax-free withdrawal from life insurance cash value

• Your emergency fund (if you have one)

• A loan or withdrawal from your employer-sponsored retirement plan

In all of these cases, it is important for you to understand the trade-offs that might need to be made. For instance, if you withdraw money from a qualified retirement account, you may be required to repay those funds.

Likewise, if you receive money in the form of a withdrawal or income stream from certain types of accounts, you could also owe income or capital-gains taxes on some (or even all) of the amount you receive.

The CARES Act was put in place to offer individuals some relief from taxes and penalties this year, if their withdrawals are due to coronavirus hardships.

Insurance Coverage

Another area of concern is the financial protection you have in place for health-related needs. As an example, if you were a participant in an employer-sponsored health insurance plan, you (and your spouse, partner, and/or others who are also on the plan) could face some substantial risks if you go without this coverage.

One possible option here could be to apply for COBRA coverage. This federal Consolidated Omnibus Budget Reconciliation Act allows employees to continue their employer-provided health insurance after they are laid off or fired, or when they otherwise become ineligible for benefits if they quit or have their hours reduced below the employer’s minimum to receive benefits.

If you are not eligible for coverage under COBRA, another alternative could be to purchase health insurance protection through your state’s health insurance exchange that was established by the Affordable Care Act.

Expenses and Budgeting

Reducing some of your expenses can also help you to get through a financial crunch more easily. In this case, you need to determine which of your ongoing monthly expenses are needs versus wants.

For instance, most people must continue paying housing expenses such as rent or mortgage and utilities. Likewise, your food, medications, and toiletries would fit into the “needs” category.

But other costs such as entertainment, personal travel, and dining out may have to be cut back (or even eliminated altogether), even if just temporarily. Other ways to reduce your monthly expenses include shopping for lower-priced auto insurance, canceling various memberships, and sticking to a list while shopping (which can help to eliminate impulse purchases).

The Job Layoff Checklist

When the regular income stream from your job suddenly stops, it can be difficult to know what you should do first. Therefore, it is beneficial to go through a job layoff checklist to make sure that you don’t miss any of the key steps:

To-Do Item

Apply for unemployment benefits

Apply for COBRA or other health insurance coverage

Determine ways that you can reduce your monthly living expenses

Update your household budget to reflect your post-layoff income and expenses

Check into possible loan options (if necessary) from your employer-sponsored retirement plan

Visit with a financial planner to discuss whether or not it makes sense for you to leave your employer-sponsored retirement funds, such as a 401(k) or 403(b) account, at your former employer, roll it over to a future employer plan, or roll it over to a personal IRA.

Update your résumé and begin searching for a new job

Updating Your Financial Plan

Even if you already have a financial plan in place, the changing economy and the volatile stock market could make that particular strategy—as well as the financial tools you have in it—out of date. This is particularly true if you have also experienced other major life changes such as marriage or divorce, the birth or adoption of a child, or the purchase or sale of a home.

If you haven’t yet created a financial plan, now is the perfect time to do so. That way, you’ll know what steps you need to take in order to move closer to your short- and long-term financial objectives in our “new normal” economic environment.

Establishing a working relationship with an LGBTQ or LGBTQ-friendly financial advisor can also help you work toward a plan that makes sense for you and your loved ones.

This article appears in the October 2020 edition of OutSmart magazine. 

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.

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