Maintaining Financial Stability After a Job Loss

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By Bennett Whitlock, CRPC®
Private Wealth Advisor

Finances can be a major source of stress for many Americans as they strive to balance a myriad of priorities. This financial stress is particularly prevalent for those who experience a job reduction or loss and no longer have the same amount of income coming in on a monthly and/or annual basis. The following tips can help you work to maintain financial stability:

Reassess your financial situation. Start by reviewing your recent bank statements, current portfolio and upcoming financial obligations. Then, talk with your spouse or partner about how to prioritize future spending. If possible, try to maintain momentum on key financial goals, such as saving for college or retirement. Even a modest amount can add up, so continue to make saving what you can a habit.

Understand your severance package. If you received a severance package, be sure you understand the terms, timeframe and payment amount. Your deal may include several paychecks, reimbursement for unused vacation or sick days and/or stock options, among other possible sources of income. Consider
reviewing the terms with a trusted attorney or financial professional, particularly if you have the option to negotiate your severance. Some companies offer career coaching, human resources support or other non-monetary benefits, so don’t overlook the importance of these benefits.

Use your emergency fund. If you have a healthy emergency fund (three-to-six months’ worth of expenses is ideal for most people), give yourself permission to dip into it. It can be challenging to
watch money flow out after diligently building your savings, but doing so can help you meet financial obligations. Once you secure a new job, prioritize rebuilding your emergency fund, so you’re prepared if other unexpected expenses come your way.

Avoid dipping into your retirement accounts. You have the potential to spend decades into retirement, so it’s important to maintain your dedicated savings. Borrowing or withdrawing money from a 401(k) is taxable, and you will also incur a 10 percent penalty fee. However, you could also miss out on months or even years’ worth of compounding and potential market growth that can be challenging to make up.

Extend your health insurance. Take action right away to make sure you don’t experience a lapse in health insurance coverage. Unexpected illnesses or accidents can happen to anyone, and the financial impact can be significantly higher without the right insurance plan. If you received health insurance through your former employer, you may qualify for COBRA insurance offered through the federal government. Costs, length of coverage and specific plan options (including coverage for your spouse, partner or dependents) vary depending on your circumstances, so contact the U.S. Department of Labor or the Department of Health and Human Services for more information. Job loss is considered a qualifying event, which means you may shop the health care marketplace to find a plan that works best for you and your family.

Consider tax implications. Losing a job and finding a new one can affect your taxes. Severance pay, unemployment compensation, payment for accrued vacation or sick time and other financial benefits from your employer may be taxed. On the other hand, costs related to your job search, such as travel, mileage or moving, may be deductible. Consult a tax professional, who can help you determine what to expect from your tax return.

Meet with your financial advisor. Any change or interruption in your salary warrants a visit to a trusted financial professional. Together you can review your financial position and determine what measures you can take during an income drought to minimize the impact on your portfolio. You can also discuss your options regarding how to handle retirement savings, company stock or other financial perks you may have received through your former employer.

Bennett Whitlock, CRPC ®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services Inc. Learn more at WhitlockWealth.com or call 703-492-7732.

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