What to Do if You Lose Your Job

Federal Reserve Chair Jerome Powell wasn’t kidding when he said that there’s “downside risk” to the labor market. The July jobs report wasn’t bad at first glance: 73,000 jobs created, and the unemployment rate ticked up to 4.2 percent. But with every monthly reading, there are revisions to the two previous reports, as more data become available, and these revisions were doozies!

The Labor Department noted that “revisions for May and June were larger than normal”. May was revised down by 125,000, from +144,000 to just +19,000, and June was revised down by 133,000, from +147,000 to +14,000. With these revisions, employment in May and June combined was 258,000 lower than previously reported.

This report finally gives credence to what economists have been noticing lately. Prior to the release of the July report, KPMG Chief Economist Diane Swonk said that headline employment figures “mask an underlying chill. Churn in the labor market has come to a standstill, with the pace of hires and quits dipping well below 2019 levels, and new college graduates are finding fewer opportunities than in recent years.”

Dovetailing on the recent college grads, analysis from the Financial Times found that “the unemployment rate for recent male graduates has risen steeply from less than 5 per cent to 7 per cent over the past 12 months, recently graduated young men are now unemployed at the same rate as their non-graduate counterparts, completely erasing the college employability premium.”

With the labor market downshifting and many industries consolidating, most workers feel like job cuts are always one day away. To help prepare and if tomorrow is your unlucky day, here’s what to do if you lose your job.

1. Sit On Your Pity Pot, for a Day: Even if you weren’t crazy about your job, losing it still can be disarming. Give yourself some grace but not too long, we have much to accomplish!

2. Tackle Two Tasks: As the shock of the news moves through your body, focus on health insurance and unemployment benefits. If you received health coverage through work, contact HR to learn about COBRA, which is the rule that allows you to keep your coverage for up to 18 months, but you have to pay for it on your own, which is usually expensive. Alternatively, if you leave your job for any reason (even if you quit or get fired) and lose your job-based health insurance, you can qualify for a Special Enrollment through the Affordable Care Act. To do so, you need to apply within 60 days of losing your job-based coverage.

   The other important task is to file for unemployment benefits ASAP. Every state has different rules (find details of your own state’s program here) and some have waiting periods, but the general gist is that you must be ready, willing, and able to work. If you are eligible, your first payment will generally be made a few weeks from the time your claim is completed and processed.

3. Take Inventory: Review how much money you have in your emergency reserve fund and how much money you owe. Before you miss a single payment, contact your creditors, including credit card companies, mortgage lenders, student loan servicers, they'd rather work with you than chase you. Many have hardship programs that might be useful for you during this (hopefully short) period of time.

4. Review Your Retirement Plan: When you leave a job where you have contributed to a retirement plan, there are a few different options to consider. (1) If your old company allows it, keep the money where it is. This is an easy way to proceed, especially if the plan is one that offers low-cost investments. (2) Roll over the old retirement money DIRECTLY into a new company’s plan. This might work well if you line up a new job quickly.  (3) Open an IRA rollover account or a Roth account and move the old plan money directly (through what is called a “trustee to trustee” transfer) into a new account. If you plan to do this, choose a firm that offers low-cost exchange-traded or mutual funds.

   There is a fourth option, but I hesitate to mention it, because it should only be seen as a last resort. You can cash out an old retirement plan, but doing so means that you’ll pay ordinary income tax plus a 10 percent penalty if you're under 59½. As an example, a $50,000 balance would become $35,000 after Uncle Sam takes his cut. That's $15,000 you just lit on fire. The giant investment firm Vanguard said that nearly one-third of people who leave jobs annually liquidate their retirement accounts. Unless you are facing a grim choice (think eviction), avoid cashing out.

5. Create a Job Hunt Strategy Update that LinkedIn profile and resume and prepare to network like your financial life depends on it, because it does. Reach out to former colleagues, industry contacts, even that person you met at a conference two years ago. A warm introduction beats any algorithm. That said, if you haven’t done this in a while, know that when sending out resumes and using job sites, generic applications get filtered out fast. Mirror the job posting's language in your resume and cover letter and use the exact skills and qualifications they list, assuming you actually have them. And like a tough restaurant reservation, you need to be on top of the process by applying within the first 24-48 hours of a job posting going live.