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What to do when you get laid off: A financial checklist

Issarawat Tattong/Getty Images

Getting laid off can be devastating. As you grapple with finding your next step, you also likely have questions about the financial impacts of losing your job. How will you stay afloat? How long can you go without working? How will you continue to provide for your family?

One piece of good news: There are some immediate, short-term and long-term actions you can take to help you through this difficult time. Here's where to start.

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6 things to ask about after you get laid off

Your HR team should share many details that can aid your financial planning, such as how long you'll have benefits after being laid off. But in the wake of surprising news, it can be tricky to remember all the crucial financial topics to cover. It's worth having a list of questions ready:

1. Severance

An employer sometimes will offer you severance after a layoff. This send-off package may include extra pay that's usually based on how long you've worked there. Employers aren't required to offer anything, but if they do, you may have the choice of getting a lump sum or multiple payments over time. Knowing this payment plan will help you plot out your short- and long-term budget.

2. When you'll get your last paycheck

Regardless of severance pay or not, you'll want to know when your last cash influx is coming so you can accurately budget for the short term. Also ask about any prorated bonuses or commissions that may be calculated separately and sent on a different date. These details can help you measure how long your cash flow will cover your daily needs.

3. Your earned time off

If you have vacation or personal time that you've earned but haven't used, you may be eligible for a payout depending on your state laws or company rules. This compensation could build up your short-term funds while you look for another job.

4. Health insurance

Your employer may extend your access to health care coverage for a period of time after the layoff. If they don't or when it ends, you may need to find other insurance options. COBRA coverage lets you stay on your current plan for a limited time by paying the entire premium yourself (unless your former employer tells you otherwise). It may be worth the expense if you have specific care needs, so get as much information from HR as you can.

5. Retirement plans & stock options

If your job came with an employer-sponsored retirement plan, you'll need to decide what to do with it if you're laid off. Your options will depend on whether it's a pension, 401(k) or other type of retirement plan. Each option may involve paying fees, taxes or penalties. Gather any details from your HR team that could help you make the best move, especially around how your contributions and any employer-matching contributions can be accessed after you leave your job.

If you have vested stock options with the employer, find out how long you'll have to exercise them. There's usually a predetermined window, often 30 to 90 days. If you don't exercise them in time, or if the shares weren't vested, they likely will go back to the company.

6. Life insurance & disability coverage

If you had life insurance or disability insurance coverage through your employer, find out whether it will end or if you can take it with you. Depending on the cost, you may want to keep them. Or you may want to explore the affordability of other options for life insurance and disability insurance that aren't tied to an employer at all.

Establish a short-term financial plan

In the first weeks after a layoff, start taking steps to steady your financial ship. Working through these tasks can help you cope with financial stressors and set yourself up for life's next chapter.

Make your new (temporary) budget

If your layoff came with severance or other benefit payouts, begin with a budget and timeline for how that money can last while you search for your next job. Gain some breathing room by reducing your spending to essential expenses and maximizing any other income sources. When you identify what it takes to cover your household's daily needs, you can estimate how long you can comfortably job hunt before you have to dip into your emergency fund and longer-term savings or make some bigger lifestyle adjustments.

Collect unemployment or assess other options

Even the best budgeting efforts may leave you coming up short. If you're eligible, you may want to file for unemployment and determine how long this benefit can help you out. You also can look into short-term or part-time work that doesn't hinder your search for a full-time job. Note that doing certain work can affect or even negate unemployment payments, so you may need to weigh what's more advantageous for you and your family.

Evaluate your retirement strategy

Now's the time to consider how you want to handle your employer-sponsored retirement plan. If you have a pension, your employer likely will determine your withdrawal options. With retirement plans like 401(k)s, you typically have the options to leave it with your employer for the time being, cash it out or roll it over to an IRA.1

If you leave the account with the employer, you may be charged administrative fees. You may only be able to leave the account with them for 30 to 90 days, depending on how much you've contributed.

It may be tempting to cash out your balance to secure some spending power, but resist this if at all possible. On top of the penalties and taxes you'll likely have to pay for early withdrawal, you'll miss out on the account's potential compounding interest if you spend it now.2 Instead, you can keep it growing by moving the funds to an IRA, annuity or other retirement investment. Once you secure a new job, you may be able to roll it into your new employer's retirement plan.

You also may be eyeing your ongoing retirement contributions as a way to cull some spending, but resist this as well. It's generally more advantageous in the long run to persistently invest for your future. You may need to decrease your contributions for a while, but chip in as much as your short-term budget allows. With all the possible avenues your retirement strategy can take after a layoff, this topic may be best discussed with your financial advisor.

Consider different ways to express generosity

After a job loss, you may grapple with how your discretionary spending affects your short-term budget, especially if you consistently give money to charitable causes. Know that you have multiple ways to contribute and support others. Volunteering your time or lending your skills or talents can be the main expressions of your generous values while you get back on your feet.

Explore new health care coverage

Based on the info you learned from HR, you may be searching for new health insurance after your layoff. If your employer didn't extend your health care coverage, you may want to revisit the COBRA option, which usually lasts up to 18 months. You also could consider a short-term medical policy or a marketplace plan—you usually have 60 days to sign up during the special enrollment period for job loss.

Lay out a realistic extended budget

The initial belt-tightening after a job loss is often not sustainable in the long run. Most people eventually will need to make big purchases for their families or households again even as the search for work continues.

Take a look at your budget, hold it up to how you've truly been faring and do a hard recalculation. Revisit all your income sources, including reliable gig or part-time work, and tally up your liquid savings, including what's left of your severance. Look for paths forward that genuinely are manageable and pose the least shake-up to your financial accomplishments.

If you think this amount won't satisfy your updated budget throughout your long-term job hunt and you've made all the lifestyle concessions you can, you may want to look at your investments and life insurance for a potential loan. This path should be approached with caution since these loans would need to be paid back to regain the full value of your policies or accounts.

Stick with your investment strategies

If you feel secure in your budget as you settle into your long-term plans, think about re-upping contributions to your investment accounts. When you stay the course of your big-picture plan, you can reap the benefits of living generously in the future.

If you need to keep slow-rolling your contributions, that's OK, too. Carry on with an eye toward when you can contribute more in the future and how that might change your retirement plans down the road. Depending on how you're keeping pace with retirement income targets, you may be able to make up some lost ground once you're settled into a new job.

Check in on your insurance protection

If you had space to postpone insurance decisions right after the layoff, now could be a good time to take another look. For instance, if you tapped into COBRA but are paying too-high premiums or it's about to expire, you may need to explore other more affordable options. Recheck your timing on eligibility to sign up for a marketplace plan.

If you didn't need to act on your life insurance and disability insurance choices right away, reassess how those rank on your priority list with a clearer perspective.

Adjust & adapt your long-term financial plan

After you've patched your finances for now, you can evaluate your long-term outlook and opportunities. It's possible the job hunt is taking more time than you hoped. As weeks go by, you may need to balance searching for a job with similar benefits and salary or taking a pay cut or a new career path to get back into the working world sooner. Getting a better sense of your preferences will help you solidify a new long-term financial plan.

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Talk with a financial advisor

Figuring out what to do when you get laid off can involve a lot of detailed decisions. But these turning points in life can prompt reflection and a reevaluation of your goals.

Thrivent financial advisor can help you through the short-term practicalities and the long-term planning—guiding you through sustainable budgeting while preserving your future nest egg as much as possible. They're a partner to turn to as you use your skills and resources to overcome this setback and find your next purpose-filled vocation.

1 There may be benefits to leaving your account in your employer plan, if allowed. You will continue to benefit from tax deferral, there may be investment options unique to your plan, fees and expenses may be lower, plan assets have unlimited protection from creditors under Federal law, there is a possibility for loans, and distributions are penalty free if you terminate service at age 55+.  Consult your tax professional prior to requesting a rollover from your employer plan.

2 Withdrawals made prior to the age of 59½ may be subject to a 10% federal tax penalty.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.