Latest / The Deciding Factor by Edward Jones / The Post-Layoff Financial Survival Guide with Edward Jones' Facundo Abraham
Transcript
- speaker-1: A sudden layoff packs an emotional blow, but it's also a financial reckoning. As you deal with feelings of shock and dismay, another reality sets in. Your paycheck is stopping. The bills keep coming though. Making the right financial moves during these times is critical. To help us navigate, we're talking to Fecundo Abraham, senior analyst in the Advice and Planning Research Group at Edward Jones. Facundo, welcome. speaker-0: And also. speaker-1: When a layoff happens, oftentimes, you know, your head's spinning, it's really hard to think straight. And at the same time, it's when you really kind of want to be making smart financial moves. ⁓ after you kind of take a breath and a pause, what are some of those time sensitive, immediate steps that you need to do really in the first couple of days after you've heard this news? speaker-0: Mm-hmm. Yeah. I mean, and I want to acknowledge that this can be very hard. Like you may be in a very vulnerable emotional state. Yeah. But you actually need to start planning for your next chapter before you leave your job, not after. So, I mean, for example, something that comes to mind is like once you leave your job, it might be harder to like access like important information or documents than like you could ask from HR or like your internet system. Yeah. So one of the things that is important is think about all information. that you might have trouble accessing and make sure you gather it before you leave. So things that come to mind are I don't know, information about your severance package, like how much are you getting, what happens with your news vacation, when will your employer benefits end? Yeah. ⁓ information about your retirement plan. And even I would say things that will make it easier for you to find a job afterwards, like get references from colleagues or like course with the extent possible. I mean it's more to check with with your company, yeah. Like creative work that can build up your portfolio when you're applying for new jobs. speaker-1: So you are taking these preparatory steps, right? As you you've you've heard this news, you're gathering information, you're gathering some documents. ⁓ you're you're sitting home now and you have these things in place. What's your next move? speaker-0: One that comes to mind, and I think is one of the things that you should be at the top of anyone's list is health insurance. Health events can be extremely expensive. Yeah. So going around health insurance, it's not something that I would personally recommend, no matter how expensive it is to get health insurance on your own. And the second thing is that there are enrollment windows. So many people might not know this, but if you want to re enroll on health insurance, there are deadlines to do so. And past those deadlines, like you're out of luck. Yeah. So Generally speaking, there's like three main options. So the first one is like if you're married and your spouse has health insurance through their job, you can join your plan. And that's usually the least expensive option. Yeah. Another option is you might be able to continue your existing coverage through Cobra. And that is limited to up to 18 months. And this usually, I mean, I have to caution here, it can be very expensive because The your employer won't be subsidizing any of the costs. So you will be responsible for paying the entire premium. Yeah. And the third option is like going to the health insurance marketplace, like also known as the ACA or Obamacare. Yeah. And like you can get a plan through there. And again, unless you qualify for the subsidies, like your income is low enough to do so, it can also be expensive. So, but again, I think that. even though it can be expensive, yeah, I think getting insurance is like worthwhile because like the risk can be like catastrophic to you and your family. speaker-1: So in an ideal world, we have a generous emergency fund that we tap to pay the bills. But what happens after we've depleted that fund? What other sources might I have and how do I make smart decisions about which ones to use first? speaker-0: Like I mean, it it's not uncommon for people in this situation like to run out of their cash on hand. I mean, they might have a long unemployment, or maybe they didn't have an emergency fund to start with. Yeah. So I mean, there are options and I think things that you can start looking into it. It's just like selling taxable investment. What about getting money out of your retirement account? Or even like tapping into a life insurance policy. And I I would say that sometimes it's not about the challenge, it's not like finding an option, but deciding which option is best for you. Because all of these options have their trade-offs, like they have costs, they have fees, they have interest payments, and they might affect your financial plan in different ways. speaker-1: Yeah. Facundo, you may have other resources that you can draw on like a 401k or an IRA. How should you make the decision about when to pull from that? speaker-0: Mm-hmm. Yeah, I mean, I I want to be clear, Sarah, to start with that there's not a universal answer to this question. I mean, it will depend on a case by case, but I mean there are some guidelines that I I can think of. So I mean, the the deal with the 401k or any other retirement plan is that you might be subject to taxes and potentially a ten percent early withdrawal penalty if you are under fifty nine and a half. Yeah. So I think you should consider other options first. But I mean, there might be situations where maybe you can withdraw funds like without incurring a penalty. Maybe you are under fifty nine and a half, but you qualify for one of the penalty exceptions. Maybe the taxes you will incur might be a bit low. So you might wanna consider it. Yeah. But like as general terms, maybe it's not something that I would recommend as your first choice. speaker-1: If you have like an employer sponsored retirement plan four hundred one K, something like that, is that something that you should leave with your former employer? What are the options that somebody should be thinking about there? speaker-0: Uh-huh. So I would say the first thing is like don't forget about it. You can leave it with your employer. Yeah. But don't don't forget about it and let it there. You might be able to leave it with your employer, but that's not the only option. I mean, you can roll it over to an IRA or even like once you get a new job, you might be able to roll it over to the new employer plan you have. So and as I say, this is another situation where there's no one best answer to this. I mean, for each one the the solution might be different. So I let me give you an example. Okay. So like Maybe you want to roll it over to your new employer plan because like you want to have everything on the same place. That's easier to track. Yeah. But maybe your new employer plan has higher fees. So maybe you don't want to pay the higher fees. So maybe you would rather like have two separate plans. So this is a situation again where like someone that knows the ins and out of these plans can like really help you determine what's your best option. Yeah. speaker-1: We know we see the in you know, in the news stories about layoffs all the time. And even for somebody who maybe isn't experiencing a layoff, but they are, you know, anxious about this or they anticipate it maybe something that they experience. What's something that, you know, if you're in that situation you should be thinking about or preparing for? Mm-hmm. speaker-0: Ooh, I th there's a lot of things you can do, but for the sake of priority, I I'm gonna focus on just three of them that come to mind. So I mean the first one would be to understand your spending. So the idea is if your income dries up today, would you know like which spending you can immediately like cut off or like reduce? So that would really help you to adapt quickly to a situation where you don't have income coming in. So like you you you preserve your finances a bit better. Yeah. ⁓ the second thing and I we talked about the emergency fund is make sure you're comfortable with your emergency fund. Yeah. So I would say most people are okay with like three to six months of expenses in their emergency fund. So I would say if you look at it and you're below three months, maybe you want to make a plan to just start pumping up a bit. And even if you are within this range, you might want to consider whether you're comfortable. Maybe you are three or four months of expenses in your emergency fund and you're like, you know what, like I want to have a bit more Yeah. Maybe you have doubts about your industry or the economy as a whole, or you are the only person earning an income in your family. Yeah. So in that situation, you might also want to be like, okay, I'm going to put a bit more funds. So just sort of like create your ⁓ prop up your safety net. And the third one is I would take steps to make it easier for me to find a job. I mean, if I lose one. So I would start networking, updating my resume, reaching out to friends and family, and ask them for like any any job lead, so I can be more prepared for that transition if if I had to. speaker-1: On the second point about sort of building out an emergency fund that you're comfortable with, you know, that notion of comfort is probably a bit subjective, you know. And there's a tendency I think that folks might have to be a little bit optimistic and think about, well, I'll be able to cut these expenses and here's just the ones that I'll, you know, I need to cover my mortgage or a car payment. ⁓ how do people think about that or how should they think about that? Like more holistically or ⁓ or should they plan for kind of a more bare bones approach? speaker-0: ⁓ I think I I think you raise a good point. People tend to be very optimistic with what they can cut because like I can cut all these things. And when poachers come to some, it's like, well, but I want this or I want this. Yeah. So I think it's just making sure that you're really comfortable with what you think you can cut. I mean, like, yeah, is it this something that I can live with? Yeah. And like w kinda something I can actually do. Yeah. And I mean, there are other ways that like maybe you can cut spending without like damaging too much. Like, hey, like change like go to brand products, go to generic products. That's like an easy change that like it's not that everyone has subscriptions that they don't use. So there are ways to do that. But then like yes, again, be realistic about like what you're willing to cut. speaker-1: So managing your finances post layoff can be extremely stressful. ⁓ what are your parting words for anyone who might be finding themselves in the situation? speaker-0: Mm-hmm. Yeah, I mean, as I say, Sarah, I mean, this can be overwhelming. So I don't want to downplay. I we talked about a lot of things you can do. And like when someone that is in this situation can be like, I don't have the stamina, I I don't have the mindset to do this. Yeah. So I think this is a case where like you don't have to do this alone. Like it doesn't have to be a professional, maybe your spouse, maybe your family, your friend, but like get them on board, try to help you and and try to take one day at a time. Yeah. And like there's a lot of things to do. But if if you tackle them and you have a cool head, that will better prepare you for your next chapter. speaker-1: Thank Fukundo. speaker-0: Thank you, Sarat.