Companies have begun to lay off workers as the economy slows, and many economists say the trend is likely to accelerate in the months ahead.
When you lose a job unexpectedly, it can be an extreme financial and emotional shock for you and your family.
Safeguarding your finances in the aftermath of a layoff requires being proactive and taking certain timely steps.
Layoffs and hiring freezes are starting to spread across the US. Layoffs.fyi, a website that tracks downsizing at tech startups, recorded 16,081 layoffs in July, continuing a trend that began in May. In recent weeks, major companies have announced downsizing and cutbacks, including Walmart, Apple and Wayfair.
A new survey released Thursday by PricewaterhouseCoopers, which polled more than 700 US executives and board members across multiple industries, showed that 50% of companies have already reduced their headcount or are planning to. Close to half reported that they are dropping signing bonuses or rescinding job offers.
Though the current unemployment rate matches pre-pandemic lows at 3.5%, the Bureau of Labor Statistics reported that jobless claims for the last week of July reached the highest level in eight months. Initial unemployment claims are considered a general indicator of layoffs.
Regardless of if we're in an "official" recession, unceasing inflation, rising interest rates and falling consumer confidence could be signs that more layoffs are on the horizon. "We'll see layoffs increase more meaningfully, and on a much broader scale than we've seen so far," said Guy Berger, principal economist at LinkedIn, in an email. "We'll see a lot of companies across a wide range of sectors letting people go."
To suddenly learn that your position has been terminated is not only financially scary, it's emotionally devastating. When I lost my financial correspondent role in 2009 during the Great Recession in a companywide layoff, I first went through a stage of shell shock, then questioned my self-worth. And while help is available, I came to learn that the only way to ease the pain of losing a job and secure future financial well-being is by personally taking critical steps to move onward and forward.
Here's some advice for securing your finances and landing on your feet after a layoff.
1. Understand your severance fine print
If you were a full-time employee, you may receive a severance package that includes a continuation of pay for a period of time. Though employers are not legally required to offer ongoing compensation, severance can help minimize hard feelings and avoid lawsuits down the road. According to the Society for Human Resource Management, the average severance equals one to two weeks of your salary for every year of service. So, if you had a two-year run, you might receive up to four weeks of pay.
Before you sign a severance agreement, be sure to have any questions answered by your human resources department. You may also be able to negotiate for more benefits like extended health care or access to job placement services. But don't take too long: Severance agreements must typically be signed within 21 or 45 days, depending on your age and whether your position was terminated in a group layoff.
Avoid signing any waivers without fully understanding the terms or consulting with an employment attorney, especially if you experienced workplace discrimination.
2. Apply for unemployment benefits immediately
As layoffs heat up, states may have a harder time processing jobless claims in a timely fashion. You must apply for unemployment benefits in the state where you worked, and the sooner you apply, the better. Though each state has its own eligibility requirements, you can usually apply if your job was terminated through no fault of your own. The Department of Labor has a list of all state application websites. It usually takes two to three weeks after submitting a claim to receive benefits.
3. Secure health insurance
If you received a health care plan through your previous employer, it's easy to assume that you can't afford this on your own. Though it can be expensive, it's critical to prioritize this in your budget in case you have an emergency or need a costly medical procedure between jobs. One in 4 Americans say they struggle to pay medical expenses, and multiple studies cite medical debt as a leading cause of bankruptcy.
You may be able to continue receiving the same coverage through a federal program known as COBRA for up to 18 months. While this option can be convenient, it's pricey because you'll be covering your portion as well as your previous employer's contribution. There's usually a 2% administration fee tacked onto that, as well. Employers should provide laid off workers with a COBRA election form within 30 days, and you'll have another 60 days to apply. Coverage begins on your last day of employment or the day after employer-sponsored benefits end.
It might be cheaper to be added to a partner's group health insurance plan. Insurance plans on the Health Insurance Marketplace are worth reviewing, too. While the open-enrollment period is generally in the fall, if you lose your job at any point and expect to lose coverage in 60 days, you may be eligible for a "special enrollment period" due to the job loss.
Finally, if you're a member of a labor union or a professional organization, or if you take courses part-time at local college, you may be able to access more affordable group health insurance through those networks.
Read more: How to Get Health Insurance if You Lose Your Job
4. Scrutinize nonfixed expenses
Losing your job immediately puts your variable expenses under a new light. Do you need that monthly subscription or streaming service? Can you shave $50 off your monthly food and drug store purchases by buying generic? When you're unemployed, more cash in the bank means less stress.
Cutting out these expenses takes only a few minutes. After I lost my job in 2009, I reached out to multiple customer retention offices, including my gym and cable company, and negotiated discounts or temporary account freezes. I managed to save a couple hundred dollars per month with these brief phone calls.
While you're at it, call your creditors. If you think you'll have a hard time paying your monthly credit card statement or other debt, it's better to be proactive now and ask for alternative payment options while your account is still in good standing. During the pandemic, the Consumer Finance Protection Bureau encouraged banks and credit card companies to work with customers affected by COVID-19 and provide financial support, including reduced interest rates and loan extensions. These assistance programs may continue to be available and individual lenders may even offer their own unemployment protection programs.
If you need more advocacy, reach out to a nonprofit credit counseling agency like the National Foundation for Credit Counseling.
5. Protect your retirement account
A layoff may also mean losing the ability to contribute to your workplace retirement account like a 401(k) or 403(b). You won't lose the money, but you'll need to make some decisions to protect your savings. In the transition, it's key to understand your options, follow instructions and mind certain deadlines.
You typically have three choices. The first is to cash out the account. This option may be most appealing if money is scarce following a layoff, but it comes at a price: Withdrawing your savings before age 59 ½ may trigger a 10% penalty. You'll also need to pay taxes on the earnings.
The second option is to keep your retirement savings intact until you decide to move the funds elsewhere, like to your new job's 401(k) plan. However, if the account total is less than $5,000, it may be shut off after a couple of months and your employers will send you a check for the sum. This, again, can trigger taxes and early withdrawal fees.
The third option is to roll over your savings to your new employer's plan or an individual retirement account. This can offer more control over the account and the ability to continue contributing. If your account has less than $5,000 in it and you don't want to risk getting "cashed out," this move may be best.
Read more: Lost Your Job? Here's What to Do With Your 401(k)
6. Keep the door open with a previous employer
In the wake of a layoff, it's normal to harbor resentment or other bad feelings toward your previous employer. But it can be wise to keep the door open and stay on good terms. Stephanie Nadi Olson, founder of We Are Rosie, a job placement firm for freelance marketing experts, saw a number of employers rehire laid off staffers during the pandemic on a contractual or part-time basis. "Some companies were choosing to say, 'Hey, we hate that we have to make this decision. We want to keep you in our work ecosystem.' So they continue to access that talent," Olson told me on my podcast in June. If a layoff inspires you to transition to consulting work or a more flexible schedule, returning to your previous employer on a contract basis may be a possibility.
7. Work in a struggling sector? Consider applying your skills elsewhere
Companies in sectors that benefited from pandemic-driven spending booms such as tech, crypto, e-commerce and real estate are in a cooling period and leading the layoffs. If you work in any of these industries, remember that your skills and experience can transfer to other types of businesses, such as customer service, sales, marketing, engineering or project management. Just because you've spent your career working in the tech sector, for example, does not mean that you're limited to working in that field forever. At the end of the day, if you have a proven track record of solving problems, effectively communicating and driving results, these skills can transfer to a multitude of positions.
Consider extending your job search to new industries in need of new hires. According to a June report by the US Chamber of Commerce, some of the sectors experiencing a higher rate of job openings include hospitality, food service, education, health and wholesale and retail trade.