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Prepare a financial plan in advance of being laid off

According to the U.S. Bureau of Labor Statistics, 12.7 million American workers were unemployed as of March 2012. Unfortunately, layoffs are a part of reality, even more so in today’s economy and many people don't have a financial plan. If you suspect instability in your job or just want to make sure you can financially handle a surprise, consider the following advice to help you weather the storm.


Do identify your core expenses and trim the nonessentials

Your core expenses include basic payments such as your car, mortgage, utilities,groceries, etc. These are the absolutely essential bills that you must pay to keep the lights on, a roof over your head, and food on the table.

The discretionary expenses are non-essentials like entertainment and vacations, which should be scaled back or eliminated during a job transition until you’re back to work.

If you are still working, but suspect you could be downsized in the near future, this exercise is helpful to determine how much emergency funds you should have on hand. Consider keeping approximately 6 months of living expenses in cash reserve such as a money market to give you a cushion in case of emergency.

Do identify sources of funding

Your funding sources are what you will live on during your unemployment. They are sources that can help you live and pay your essential bills. Consider the following:

  • Will you be able to obtain part time or consulting work? If so, it may help you extend your unemployment benefits.
  • How much do you have set aside in cash reserve (money market, CD’s, savings account) to handle emergencies or offset shortages in income?
  • How much will your unemployment benefits (contact your state agency ASAP) provide you?
  • Will you receive a severance benefit from your employer?
  • Could you access cash value in life insurance policies or social security if you are the age of 62 or older?
  • Lastly, consider retirement plan assets, but only as a last resort. Using 401(k)’s, IRA’s, and other retirement accounts may carry a penalty in addition to ordinary income tax. Consult your tax advisor and financial advisor before you utilize any funds from retirement accounts.

Do set a realistic timeline

Assume a nine to twelve month timeline for your job search. Get started today. In today’s job market, your next position may take longer than in the past to find. It’s better to assume a longer time frame and be pleasantly surprised than to come up short.

Do utilize retirement dollars as your last resort

As mentioned earlier, if you have to use retirement assets, talk to your financial advisor and your tax advisor about how to trigger as little taxes and penalties as possible.

Consider utilizing qualifying medical expenses for example or rule 72(t), also known as Substantially Equal Partial Payments, or SEPP, which may allow you to access your assets without tax penalty by taking properly calculated income from an IRA before the age of 59 1/2 on a regularly recurring basis, such as annually or quarterly. Rule 72(t) also comes with some rigid requirements, such as having to take income for 5 years or until the age of 59 1/2, whichever is the longer time period of the two.

Do put word out to your social network

Word travels fast, especially on Facebook, Twitter, or LinkedIn. Update your status and let your friends and professional network know that you’re looking for a new opportunity. You may cut a lot of time off of your search and lost wages by using your connections.


Do not forget to cut the fluff

Call the cable company and cut your service down to the basics. Often they’re willing to cut you a special deal for several months to avoid changing your bill. Eliminate as much as you can from your nonessentials.

Do not forget NUA

An often overlooked strategy is NUA, or Net Unrealized Appreciation. If you have company stock in your retirement plan, contact your advisors for an analysis before you rollover your account(s). Remember, once you do the rollover without using NUA, you can’t get a do-over, as it’s an irrevocable decision. When appropriate, NUA can help you turn ordinary income taxable assets into capital gains, which may be a much lower tax rate.

Do not wait too long to get started

Procrastination is the number one reason people don’t reach their goals. This includes finding your next job. All too often I see people wait a few weeks before they start looking, then run out of unemployment benefits or end up selling their home to get out of the mortgage payment. In today’s market, you will become irrelevant very quickly. Start your job search as soon as possible.

Do not miss an opportunity to network

As someone who is considered a local networking guru, I’ve witnessed and helped many people find their next job by introducing them to a recruiter, manager, or business owner in the field they were looking to get into. A quick google search will help you find several free or low cost business networking meetings in your area. A great resource and one that I list my own events at is Order some free business cards from Vistaprint with your contact info and get out there and shake some hands. Networking is one of the best and fastest ways to find a job opportunity.

Jumping cartoon

Change can be intimidating, especially if it wasn’t by choice. Unfortunately, change is also inevitable for most of us when it comes to our jobs. Following a few steps can put you and your finances in the drivers seat, rather than being a victim of circumstance.

More expert advice about Finding a New Job

Photo Credits: frustrierte hausfrau mit finanzproblemen© Picture-Factory -; Check Man, Cross Man and Jump Man © ioannis kounadeas -

Scott Jones, CRCP®, RFC®Financial Advisor

Scott Jones honed his retirement planning skills for over 9 years with Ameriprise Financial as a Financial Advisor and Advisor Coach prior to founding Jones & Associates Wealth Management. When not at the office, Scott enjoys spending time wi...

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