By: Alex Talcott – April, 2018
Finances can be a major source of stress for many Americans, as they strive to balance myriad money priorities. This financial stress is particularly common for those who experience a job reduction or job loss and no longer have the same amount of income coming in. If you experience an unexpected change in your employment status, review your financial situation and create a plan to help you feel more in control. 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, chat 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 paid-time-off or sick days, 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 in your package.
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 another unexpected expense comes your way.
Avoid dipping into your retirement accounts. You have the potential to spend decades in retirement, so it’s important to maintain your dedicated savings. Borrowing or withdrawing money from a 401(k) is taxable, and 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 flip side, 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 for this year’s 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.
Alex Talcott, JD, is a Financial Advisor with Ameriprise Financial Services, Inc. in Middleton, Massachusetts and Portsmouth and Bedford, New Hampshire. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 10 years. To contact him: (603) 319-3108; 25 Chestnut St., Ste. 300N, Portsmouth, NH, 03801; www.ameripriseadvisors.com/alex.talcott
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser. Ameriprise Financial Services, Inc. Member FINRA and SIPC.© 2018 Ameriprise Financial, Inc. All rights reserved.