By Keith R. Davenport, CFP™, MPAS™
Finding yourself out of work can be a challenging experience. Aside from the obvious financial anxiety it can cause, the stress of being unemployed can also take a toll on your overall mental and emotional health.
Yet, according to a survey cited in Yahoo/Finance, about 68 percent of Americans will have a work gap on their resume indicating that they were unemployed for one reason or another.
The reasons for these employment gaps vary, but 39 percent of the time, family responsibilities are the primary explanation. Other reasons include illness, being laid off or downsized, or that an employer went out of business.
On the one hand, being without a job can feel like the worst thing to happen in your career and life, but it also presents an opportunity to take a step back and regroup. Since the pandemic, resume gaps due to unemployment have been met with much less skepticism. Some news outlets explain that: “Sites such as LinkedIn are also helping to normalize resume gaps by adding a new ‘career break’ option, where users can list reasons for time off such as ‘career transition,’ ‘relocation’ or ‘health and well-being.’”
However, remaining proactive and focused can help you weather this unsettling life event. Being unemployed is a temporary setback, and with careful planning, you can navigate through this season and emerge stronger on the other side.
Here are a few things to keep in mind.
Lean on your support network
Look to family, friends and professional connections — not just for financial support, but to organize a game plan to handle being out of work. While it is easy to think that money is the most important consideration, there’s a lot more to having a support network than the financial aspect. Many of us are not experienced in what to do after losing a job, and seeking advice and guidance from those close to us can be extremely beneficial.
Apply for unemployment benefits
When it comes to the financial details after losing a job, you should understand what is needed to apply for unemployment benefits as soon as possible. These payments can fill in the gap and provide some financial assistance until you secure a new job.
Unemployment benefits vary from state to state, but you’ll generally have to meet the eligibility criteria to receive benefits. Check with your state’s Department of Labor for more details. Benefits typically last up to 26 weeks, but in some states that period could vary. The amount you receive will depend on your previous weekly earnings and your state’s maximum benefit.
If you’re offered a severance package due to a layoff, carefully review the terms and conditions. You might want to consider negotiating for certain features in your severance package, such as asking your former employer to subsidize your health insurance costs for several months.
Take an inventory of your current overall financial situation
Making time to review your personal finances will be one of the most important steps you can take. Carefully review your savings and investment accounts, monthly expenses, outstanding debts, and any other financial commitments. Before making any major financial moves, it is important to first take stock of your individual financial picture.
Evaluate your overall budget
Identify areas where you can cut back on expenses. Focus on essentials like housing, utilities, food and healthcare. You might need to prioritize expenses and allocate funds accordingly and look for ways to reduce costs. Assess your financial obligations and see if you have enough money to get you through the short term. Figure out how much money will be coming in each month through severance and/or unemployment benefits, along with a spouse’s or partner’s income.
Then, review your outflows: rent/mortgage, utilities, car payments, food, insurance, credit cards, educational expenses and cell phones. You might also have new expenses, such as COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation coverage for health insurance, since losing your job is likely to impact your healthcare coverage. COBRA coverage does not involve cost sharing with your former employer, and the cost now becomes your responsibility. For most people, this cost is unaffordable when unemployed. Be sure to research more affordable coverage alternatives in your state’s healthcare marketplace to maintain coverage. Also, some drug store chains might offer ways to save on prescriptions.
Tap into your emergency fund
Ideally, you should have at least three to six months of living expenses set aside in an emergency fund for circumstances like this; consider using your emergency fund to cover essential expenses during this time. Be mindful of how much you withdraw and try to preserve your savings as much as possible for key expenses.
Many people consider dipping into their retirement accounts, especially if they do not have an emergency fund. However, it is critical to exercise caution when using your retirement accounts, and we do not recommend it. Pulling funds out of your 403b or 401k plans could lead to serious tax consequences, as well as the loss of retirement savings you will need down the road. If you’re 55 or older during the calendar year you lose or leave your job, you can withdraw from a retirement plan without paying the 10-percent penalty, but your withdrawals might still be subject to income tax.
Also, some states might reduce the amount of unemployment compensation dollar-for-dollar because of your withdrawals, so check the policies in your state first.
Seek professional guidance
You might want to seek the assistance of a financial expert. Talk to a CERTIFIED FINANCIAL PLANNERTM who can help guide you and answer important questions. When you’re out of work, financial planning becomes even more critical to ensure you can sustain yourself until you secure a new job.
Income loss due to unemployment can be tough to handle. What matters most is maintaining financial stability while you figure out your next move. By taking these planning steps, you can weather this period of job loss and transition.
Keith R. Davenport, CFP®, MPAS™ is a Financial Planning Specialist for MMBB and a Certified Financial Planner™ who brings more than 25 years of experience, providing objective retirement and financial planning.
Davenport earned his B.S. from Morehouse College and M.S. in Personal Financial Planning from the College of Financial Planning.
