Chris Castaneda is worried about his job. A resident of Anchorage, he's been with the Bureau of Land Management for less than a year. "I'm concerned that I might be furloughed, but being laid off is also a possibility," Castaneda said. "I'm overhead at the end of the day."
The specter of a potential job loss would be stressful for nearly anyone, and 2023 has been a year of layoffs for many. In the technology sector alone, nearly 200,000 workers lost their jobs between January and May. Other tech giants, including Meta and Microsoft, say they still intend to cut positions this year.
Losing a gig is particularly tough for the 63% of Americans who live paycheck to paycheck and therefore don't have the financial cushion they'd need to weather a period of unemployment.
Fortunately, Castaneda and his wife and young daughter aren't among those Americans. After they began working with Kassi Fetters, a certified financial planner in Anchorage, they reduced costs, became more intentional about making and sticking to a budget and created an emergency fund to cover about four months of expenses without changing their lifestyle. Cutting their spending allows their nest egg to last longer, as does the fact that Castaneda's wife also, at least for now, has a full-time job.
Reserves, information and communication
An emergency fund containing three to six months of current expenses is the centerpiece of any plan to survive job loss, Fetters said. With that in place, a person who fears an upcoming layoff can sit down with family members and discuss two key scenarios:
• How long the family can continue living as they already are, without cutting expenses or changing how they deploy their savings.
• How long the family can survive without cutting expenses or changing how they direct other money. This question should prompt a discussion about which expenses are the most and least important. Maybe restaurant meals are a pleasant convenience, but a gym membership is an essential.
Clients and their families should also look at where other money is going.
"You're probably in crisis mode at less than three months of money for essentials," Fetters said.
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Fetters also recommended that a client family scope out what they would do if they needed to find pots of money or income streams. This might involve anything from selling an investment property to renting out a spare room.
"Do you have a big chunk of money going into retirement savings? Deferred compensation? Consider turning that off until you're more certain of your job," Fetters said. The same goes for any debt repayment that's more than the minimum required. Save that money instead in a bank account.
Tapping retirement money early shouldn't be high on the list of potential funding sources, she adds. Clients should exhaust government assistance options and severance packages before raiding tax-advantaged investments. Debt forbearance may also be a helpful option.
Consider taking a buyout
Some clients facing a potential layoff may have the option to take a voluntary buy-out from their employer. Scott Custis, a financial planner at Money Scientific in Hebron, Kentucky, recently helped a client decide whether or not to take an employer buyout. The client is 59 years old, has been with his employer for more than 27 years, and had planned to retire at age 63.
"They offered him an increase in his deferred compensation plan that took it from $600,000 to $1.1 million, to pay out over 15 years," Custis said. While working for another three or so years was slightly better in numerical terms, the client still decided to take the offer.
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"If he declines the voluntary early retirement, what are the chances that they lay him off anyway?" Custis asked. "They laid off 8,000 to 10,000 people beginning in April." The client may be hired back as a contractor for his former employer.
Invest conservatively for now
Kristy Jiayi Xu, a Bay area financial planner, said that many of her clients are tech professionals who may see volatile markets as a good opportunity to invest. She advises against that.
"Tech startups might not be the place to put money right now," she said, especially if there's any hint — like potential layoffs — that a client might not be able to lose the investment comfortably.
Xu also counsels her clients to look at stock awards that are part of compensation plans.
"Many tech professionals are rewarded with restricted stock units from their employers, and some tech professionals are very reluctant to sell them, because they believe in their companies," she said. "I recommend that clients who have an overly concentrated position in their employer stock consider diversifying their portfolios so that their financial health is not dominated by the financial performance of their employers. Anything more than a 5% position is just too much."
Don't forget health insurance
Losing a job means more than forgoing income — it usually also means losing health insurance. Workers facing a possible layoff should find out how long their employer will sponsor their coverage. When it ends, workers have the option of paying for COBRA coverage for up to 18 months, which lets them keep the same insurance they had while employed, but it can be expensive. "Employers don't usually subsidize COBRA coverage, so you pay the premium in full," Fetters said.
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Buying health insurance on the open market is the other coverage option, as losing a job qualifies consumers to sign up for a new policy. A health insurance broker or healthcare.gov can help clients find appropriate health insurance.
Plan more, worry less
Whether a layoff ultimately happens or not, clients who plan how they'll handle losing a job almost always worry less than they did before planning.
"I spend a lot of time helping people go through these steps and it usually relieves a lot of stress," Fetters said. "Worry comes from not knowing your options."
