Losing a job causes financial hardship and stress. It’s scary. And when the country is going through tough economic times, there is a lot of uncertainty surrounding job opportunities.
If you lose your job, here are six steps you can take to get through it smoothly.
1. Get the details of your final paycheck
Start by asking your employer these questions:
- What is your last pay date?
- How much is your final check?
- When will you receive it?
It’s likely the company will have your final paycheck ready for you when you are notified of the termination. Make sure you are compensated for everything you’re entitled to according to company policy, such as unused vacation and sick time, bonuses, commissions, and unreimbursed expenses.
2. Ask about a severance package
Your employer may offer a severance package. It’s not required, but some employers offer severance to maintain goodwill with former employees.
A severance package is a continuation of pay and benefits after your termination date. The amount of your package is typically based on your length of service with the company.
When offered a severance package, you will be required to sign a severance agreement. Make sure you understand the details. The agreement may include waiving your right to sue the company or agreeing to not work for a competitor for a period.
Depending on your state, receiving a severance could make you ineligible to receive unemployment benefits.
3. File a claim for unemployment benefits
File for unemployed benefits right away to ensure you receive pay as soon as possible if you’re eligible.
Unemployment benefits are generally available to qualified workers who are unemployed through no fault of their own. Each state administers its own unemployment insurance program and sets eligibility requirements under federal guidelines. Employers cover the cost of the programs through a Federal Unemployment Tax (FUTA).
The benefit amount and duration varies by state. According to the Center on Budget and Policy Priorities, most states provide up to 26 weeks of benefits and replace about half of a worker’s wages. As of January 2020, the average weekly benefit nationwide was $385.
Coronavirus unemployment benefits
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020 to assist Americans with the economic impact of the coronavirus.
One component of the CARES Act expands unemployment insurance benefits, including:
- Unemployed workers will receive an additional $600 per week in benefits on top of the regular state benefit, from the date the bill was signed through July 31, 2020.
- Regular state benefits will continue for an additional 13 weeks.
- Workers excluded from the regular state unemployment insurance program, or who have already exhausted their state benefits, may qualify for Pandemic Unemployment Assistance (PUA). This includes self-employed workers, independent contractors, freelancers, part-time workers, and workers who do not have a long enough work history to qualify.
4. Find new health insurance
One of the biggest concerns when losing a job is losing health insurance coverage, especially if you like what you have. But you have options.
The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that you’re able to purchase health insurance through your previous employer’s plan after a “qualifying event,” which includes job loss for any reason. Coverage can continue for 18 to 36 months, depending on the qualifying event (18 months for job loss), and you have to pay 100% of the premium.
A spouse’s plan
If your spouse is working and has health insurance, you may be able to obtain coverage on their employer’s plan.
Normally, a spouse can only be added during the designated open enrollment period. However, when one spouse loses coverage, this is considered a life-changing event that qualifies for a special enrollment period when you can be added.
Under the Patient Protection and Affordable Care Act (PPACA), you can purchase private health insurance, find out whether you’re eligible for subsidies and sign up for Medicaid through the federal Marketplace.
Normally, you can only enroll during the annual open enrollment period. But if you lose your job, you qualify for a special enrollment period. You have 60 days to enroll in Marketplace coverage from the date you lose your employer-based coverage.
5. Quickly increase your cash flow
Suddenly you’ve lost income — but you still have bills to pay.
Find ways to spend less
To increase your cash flow until you can recover your income, look for opportunities to cut back on your variable expenses. Variable expenses are those that fluctuate and which you have some control over, such as
- Take-out dinners.
- Online services.
You can even control the cost of your electricity to a certain degree. Adjusting variable expenses lets you find savings without completely eliminating them.
Also assess which expenses are for a need versus a want. Anything you don’t need(discretionary) you can eliminate for now to free up cash flow without causing a major disruption in your life.
Tap into investments or retirement accounts (cautiously)
Do you need to tap into your investments for immediate cash needs? If you do, move the money out of volatile assets, such as stocks, and into a checking, savings or money market account. You don’t want money you need in the short term at risk.
Only take money out of your retirement account(s) as a last resort, such as to avoid foreclosure on your home or filing for bankruptcy.
Normally, when you take an early withdrawal from a retirement account, you have to pay taxes on the amount withdrawn plus a 10% early withdrawal penalty, though IRS rules allow exceptions. For example, while unemployed, you can take a distribution from an IRA account to cover health insurance premiums.
The CARES Act waives the 10% early withdrawal penalty as long as the distribution is due to a coronavirus-related hardship. You will still have to pay tax on the withdrawn amount.
6. Talk to your creditors
If you have debts such as a mortgage, car payments, student loans, or credit cards, chances are it will be difficult, if not impossible, to keep up with the payments after you lose a job.
Talk to your creditors. Let them know what is going on. Many will work with you through the tough times. They may let you defer payments, restructure the terms, waive late fees, or find other solutions. There is no harm in asking.
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