What to do after losing a job: How to navigate job loss

Losing a job can be an overwhelming and stressful life event. Not only do you have to deal with the emotional toll that job loss may take, but also the financial strain that comes with a disruption to your income.

However, it’s important to remember that this period is temporary and there are steps you can take now to help mitigate adverse financial impacts.

Your Ameriprise financial advisor is here to help you navigate life’s many transitions and periods of uncertainty. If you are newly unemployed and are wondering what to do when you lose a job, here are seven actions you should consider:

1. File for unemployment benefits        

Unemployment benefits (also known as unemployment insurance) can help ease the financial burden in the interim as you seek out a new opportunity. These benefits vary by state, but they are generally available for up to 26 weeks and can be applied for online. Before you apply, know that taking severance pay, temporary work or retirement payouts may disqualify you from receiving benefits, so make sure you carefully consider your options. But don’t wait too long — it may take a while for the government to process your application and issue your benefits.

2. Weigh your severance options

If your former employer offers a severance package, it can help soften the financial blow of job loss while you search for a new position. However, you’ll want to understand the implications of the different severance structures. For example, taking severance pay in a lump sum may give you control over your money, but you may lose some employee benefits, such as group health insurance. The timing of a lump-sum payout can also have tax implications if your severance income pushes you into a new tax backet. If you take your severance as a continuation of salary, it’s common to be able to keep your benefits.

3. Secure health insurance

Bridging the health care gap during job transitions can be a challenging process, as most Americans get medical insurance through their employer. But you have options: If you want to continue your employer-sponsored health care, a federal law, known as COBRA, entitles you to continue receiving that coverage at your own expense for up to 18 months at group rates upon termination of employment. A COBRA policy, however, is typically more costly as your employer no longer subsidizes your insurance.

Beyond COBRA, you can always purchase insurance through the Health Insurance Marketplace or consider private or short-term health insurance. If your spouse or partner has employer-sponsored health insurance, explore getting coverage through joining their plan. The latter option is typically the most cost-effective route, and you may be entitled to enroll immediately, as a loss of coverage is considered a qualifying life event.

4. Create a budget and find ways to cut back

Building a budget can help give you a feeling of control over your financial situation during this period of uncertainty. If you’re concerned about expense management, start by listing out all your current bills and obligations, and then consider reducing unnecessary costs. You may naturally spend less by not commuting and eating fewer lunches out, and you could also consider reducing cable TV and internet services, switching to a less expensive grocery store or obtaining better rates on your auto and homeowners insurance coverage. You may also want to consider temporarily pausing, or reducing, your savings rate as you navigate this temporary disruption to your income.

5. Plan for your short-term income needs

Creating a plan to bridge the income gap during this period is critical when navigating a job loss. Will your severance pay adequately cover your expenses in the interim? Do you plan to draw from your cash reserve instead? Or maybe you’re considering tapping into investments housed in a brokerage account? Take inventory of all the potential income streams available to you and determine how you want to address your short-term liquidity needs. Your Ameriprise financial advisor is here to help you evaluate your financial situation considering this unexpected event and identify short-term income solutions that make sense for you.  

6. Avoid tapping into your retirement savings

When facing uncertainty around income, it may be tempting to draw from your retirement savings to help alleviate the immediate financial pressure. But drawing from your retirement accounts should be a last resort. Not only will you likely incur penalties and taxes if you prematurely withdraw funds from your IRA or 401(k), but you’ll also lose out on the power of compounding returns.

7. Contact your lenders and investigate hardship programs

Many debtors offer hardship programs or other temporary accommodations in the event of job loss. If you’re concerned that you may not be able to meet your debt obligations, try negotiating with your creditors to lower interest rates on your credit cards, defer a payment on your car loan or reduce your monthly payments temporarily. You also may be able to lower your home mortgage monthly payments by refinancing to a lower rate (if you can qualify despite your job loss), or by negotiating a longer repayment period.

Let’s make a plan

Your Ameriprise financial advisor is here to help you navigate any short-term financial needs while helping to keep you on track to your long-term financial goals.