One of the major life events that most of us experience in our lifetime is a job transition. Whether elective or not, a job change can be challenging to navigate from both an emotional and financial perspective.
Here in the late fall of 2022, news of tech industry layoffs have taken the country by storm, with thousands of employees being let go across multiple companies. Meta/Facebook and Twitter have received the most media coverage, with Meta cutting their workforce by a staggering 11,000 workers (13%) and Twitter 3,700, or 50%, of their employees.
While Meta and Twitter dominate the headlines, other tech companies have also taken strides to reduce their workforce recently: Snap: 1,200 workers or 20% of their employees, Lyft: 700 workers or 13%, Stripe with a 14% reduction, and Redfin, 13%. Although it hasn’t happened yet, Amazon is also anticipating a possible 1% or 10,000 employee reduction in force in the near future.*
*Source: Wall Street Journal
With so many professionals and families in the midst of employment uncertainty and transition, it’s natural to wonder, “What should I be doing during this time?” While each individual circumstance is unique, here are 4 key things for professionals to consider.
Examine Your Cash Flow
Identifying your true expenses is highly important during a job transition. The easiest way to determine what your actual expenses are is to simply look at your bank account balance from the past year focusing on the month end balance. All of your expenses, even if paid by multiple sources, should all flow out of your bank account, which should give you an accurate figure.
Delay or cancel any ancillary expenses during this time to give yourself breathing room in your budget while in job transition. Delay any unnecessary large purchases during this time.
If you have received a severance package upon your departure, we recommend mapping the severance income over to your monthly expenses along with potential unemployment benefits to bridge your income gap.
If you have an income gap and do not have an emergency fund, be smart about where you are pulling assets from. Selling out of investments to get access to cash should be handled with awareness of liability.
Manage Your Tax Liability
Be proactive with your current year tax planning. If you received a severance payout, you may see a spike in your current year taxable income, which could equal a higher tax bill.
Understand the tax liability and potential penalty for tapping into your qualified account, such as a 401k or IRA. Withdrawing funds from either before age 59 ½ generally results in an early withdrawal penalty of 10%, plus applicable Fed and State taxes owed.
If you hold a concentrated position of company stock, consider delaying cashing it out all in one tax year. While we recommend diversifying concentrated positions, you should consider doing so with a thoughtful plan.
Explore Benefit Options
Typically your former employer will offer you COBRA health coverage which can provide you and your family with continuity of medical coverage. Although this option seems like the easiest choice, COBRA benefits can be more expensive than if you were to obtain your own health insurance policy. We recommend that you reach out to a medical insurance broker to get quotes on independent policies.
If you had life insurance through your previous employer, you will likely lose that benefit upon departure. Be vigilant in doing your research if you choose to work with an insurance agent. We recommend that you work with a fiduciary to evaluate the correct amount of insurance protection for you and your family.
Be Smart With Your Investments
If you have a 401k plan with your previous employer, understand that cashing it out will have immediate tax implications and possible penalties. Consider delaying any withdrawals from qualified accounts such as a 401k and leave it in the market to continue to grow long term.
Rolling over your 401k to an IRA may be a good option for you and should give you more investment options than what is typically offered in a 401k plan with its finite fund selection. This is a good opportunity to get more strategic with your investments!
Review your equity comp, such as your ESPP, RSU or Stock Option Plan to understand vesting schedules and continuation options, if applicable.
If you have non-qualified investments in a brokerage account, be mindful of managing your tax liability during this time. Remember that cashing out of non-qualified investments could mean capital gains taxes.
We Are Here To Help
We know this can be a challenging time, and we encourage you to look at your full financial picture before making any impactful financial decisions. If you are interested in reviewing your current financial situation and talking it over with an advisor, we invite you to set up a complimentary consultation with one of our financial advisors. We will listen, help you analyze your current financial situation, and assist you in putting a clear plan into action.
