There’s no shame in losing a job and no one is immune to the possibility. Many companies are downsizing and pink slips are handed out to the least likely candidates. Losing a job takes a toll on your ego but also impacts your financial security and derails your retirement planning.
Today’s technology-driven world offers job seekers countless resources after losing a job:
- Finding a job.
- Researching careers and companies.
- Identifying ways to communicate with potential employers.
Never underestimate the power of who you know. Enlist the help of family, friends, associates and colleagues and watch your network grow. Remember it is not about losing a job and asking them to help you find one. You are simply informing them of your intentions to find a new job and the type of position you are seeking.
Even if you nailed the interview, a bad reference may mean the difference between landing the job and losing a job.
- Ask permission before listing anyone as a reference.
- Your references should be able to provide more than name, rank and serial number.
- Let your references know in advance each time they may receive a call.
- Stay in regular contact with your references; otherwise remove them from your list.
Evaluate your family’s financial situation. Look closely at your income versus expenses and make a realistic assessment of your financial security.
Hold a family meeting:
- What are the family’s priorities?
- What luxuries can you do without?
- How can each family member help out?
Your life doesn’t have to stop after losing a job. Unemployment is a temporary situation. Anything you can do to keep life as normal as possible will benefit everyone in the end.
Determine how long your contingency fund will last. If you are short on funds, you may consider borrowing from your life insurance policy* or retirement account for short-term cash needs, but remember the importance of these funds for your future financial security.
Find out if you are entitled to any severance pay and where your health insurance benefits stand. Apply for unemployment insurance immediately after losing a job. Waiting may reduce your benefits. Most employers offer temporary health insurance benefits under COBRA.
Ask your employer about your current retirement plan. Your options vary by type of plan and length of employment. You’ll generally have three choices for 401k plans or other similar retirement plans:
- Cash out
Keep your retirement plan on track by reinvesting the money in another tax-deferred retirement savings plan. A rollover IRA may help you avoid taxes and penalties.
If your employer allows you to transfer to a new retirement plan after losing a job, you can open a temporary IRA, called a “conduit IRA” which is a temporary account for investing until you can transfer it to your new employer’s retirement plan. You may also be able to leave your money in your current employer’s retirement plan but that depends on your current plan’s rules.
If you cash out and are under age 59 1/2, you’ll owe federal taxes at your ordinary income tax rate plus a 10% penalty. You may also need to pay state and local taxes on your money and may end up losing nearly half the money in account taxes and penalties. Losing a job may seem the most important thing at the moment but your future retirement plan may depend on that money.
There are many decisions to make after losing a job especially when that transition comes abruptly and without warning. Don’t lose sight of your personal financial goals.
Northwestern Mutual can help you learn about the potential alternatives available for money from your current retirement plan and offer suggestions to help you fill the holes in your retirement planning.
We can help you review your life insurance and disability insurance coverage to ensure your family is protected from the unexpected.
Losing a job doesn’t have to mean losing your shirt. Personal financial planning helps ease your mind and provides financial security for your family’s needs.
*Policy loans or partial surrenders will decrease the cash value. Tax consequences may also apply.