Continued jobless claims exceed 7.5 million this week, at a historic all-time high, surpassing even the numbers of continued jobless claims during the Great Recession. The layoffs are disproportionately affecting hourly workers, but high-earners are not being spared. More than half of the workforce could face a layoff or reduction in hours due to the Coronavirus pandemic, according to Moody’s Analytics, with up to 80 million jobs at risk in the months to come.
For high-earners who have experienced a layoff or are currently worried about being the next person impacted, we’ve put together essential action items to take when layoff/unemployment anxiety is keeping you up at night or if you’re now looking to find answers while unemployed. Despite the potential emotional impacts, there is a lot you can do to regain your footing in your financial situation.
If You Fear You’ll Receive a Layoff Notice
If you’re worried about losing your job, one of your first steps should be evaluating your current financial situation. Take this extra time at home to reevaluate your budget, your expenses, and your savings plan. Double down on your emergency fund and trim unnecessary expenses like that wine subscription or the gym membership you keep forgetting to cancel. Now is the time to avoid making emotional purchases, even if it feels like they might help calm the anxiety of potential unemployment.
If You Don’t Have a Budget
We know budgeting isn’t fun but, if you don’t have a month-by-month budget, work on combing through your bank statements, your paychecks, and credit card statements to build a realistic budget. Prioritize paying off high-interest debts, your mortgage, and other debts when formulating your budget. Be honest with yourself on where you’ve been spending a little more than necessary and build personal awareness on discretionary spending.
If You Receive a Layoff Notice
If you’ve been laid off, remember that you’re not alone. While there’s often a stigma or sense of shame around being laid off, particularly when you’re a high-earner, keep the context of the current unemployment wave in mind and avoid putting the blame on yourself. Give yourself a couple of days to relax and disconnect from your previous role, practice activities you enjoy and perhaps didn’t have a chance to do while employed. Then, focus on your new full-time job being finding a job and seek meaning in where you’d like to be. Consider this an opportunity to improve your financial situation and set new or updated professional goals.
Financially, your first step upon receiving a layoff notice is to check in with your company’s HR team. Find out when you’ll receive your last paycheck and what it will include, particularly getting paid out for unused vacation time or other corporate perks.
A clear picture of your new financial situation will allow you to plan for the months ahead: including if you’ll receive severance pay, unemployment benefits and the CARES Act, potential stock options, and how your emergency fund might fit into the equation.
Severance packages come in many shapes and sizes, some might include services like LinkedIn Premium, career transition services, or an extension of healthcare services. Most often, they are a one-time lump sum paid out on the day you are laid off or your final day of employment.
As a high earner, you’ll likely receive a large lump sum and while that will provide some momentary relief, it’s easy for it to banish without making a plan for those funds. Your severance can come in several forms, including an extension of healthcare benefits and/or career transitions services, but they usually consist of a one-time lump sum paid to employees after their last day of employment. Receiving a lump-sum severance payment can feel like a windfall, but it can quickly disappear without a plan. Review your budget to see how the severance package can keep you above water for the coming months. For example, if you don’t have enough to pay your debts, considering allocating these funds towards that.
Additionally, remember that just like you potentially negotiated your high salary or compensation package, you can negotiate your severance package. Don’t be afraid to discuss the package with your employer and find a middle ground where you both feel comfortable ending on good terms.
TIP: The average job seeker spends about 5 months finding a new job. While these are unprecedented times, evaluate how your new income sources (be they severance, unemployment benefit, or even dipping into your emergency fund) will last over the next 4-6 months.
Filing For Unemployment Benefits & Potential CARES Act Benefits
File for unemployment as quickly as possible. The sooner you make your claim the sooner you can start receiving benefits. As an unemployed high earner, it can feel off-putting to request government aid; however, remember that this is why these monetary and fiscal policies have been put in place and consider the positive impact it can make on your finances over the coming months. There are plenty of unemployment benefits for which high earners are eligible and your unemployment benefits claims are completely confidential, meaning no future employer will know you’ve received funds.
Unemployment benefits are temporary cash you can receive for a maximum of 26 weeks and which can be directly deposited into your existing bank account. These funds are available to you if you’ve lost your job through no fault of your own and are actively looking for a new role. Due to the current health crisis, employees who have been temporarily furloughed or unemployed can also claim unemployment benefits if they are quarantined or their employer has ceased operations, but expect to return to work.
TIP: Each state has its own virtual website for filing unemployment, so google “your state + unemployment claim” to find the right page for you. Upon filing your claim, your state’s respective Employment Department will verify your eligibility and wage information to determine your weekly benefit amount. Some states, such as California, have a calculator you can use to estimate potential unemployment benefits.
Additionally, you’ve likely heard a lot about the Coronavirus Stimulus Package (CARES Act) and its benefits, regardless of employment status. For more information on whether the CARES Act can fit into your unemployment financial plan, learn more in our two-part series: Coronavirus Stimulus Package: The Basics and How Does The Coronavirus Affect Me.
If stock options were included in your compensation package, as occurs for many tech high earners, discuss how long you have to exercise your stock options with your employer. Be sure to ask if there are any stock awards you will have to forfeit.
The volatility in the stock market, as well as steep drops, likely means you’ve seen the value of your company’s stock nosedive. Holding onto your stock options, and other investments, until the market improves is the best action plan.
TIP: As part of your severance package, discuss with your employer if you can extend the time to exercise these stock options.
401k or Other Retirement Plans
What happens to your 401k after leaving a company depends on your plan. Review with your financial advisor or accountant how your specific retirement plan will be impacted by your unemployment. You might be able to afford to contribute the maximum amount to your retirement account prior to your last paycheck, a particularly good idea if your company offers a match. Note that the maximum amount an individual can contribute in 2020 is $19,500 for people under 50 years old and $26,000 for those 50 and older.
If you’ve been responsibly stashing a percentage of your salary towards your emergency fund, well-done! After evaluating all of your potential unemployment “income” sources, consider dipping into your emergency fund. While it might feel scary to utilize funds you’ve been saving for so long, remember that this is an emergency. Use these funds to make ends meet as you work on finding other employment, once you do, you can go back to contributing to your rainy day fund.
Unemployed High Earners: It Will Be Ok!
The fear of being laid off can be extremely nerve-wracking and emotionally challenging. As with all financial decisions, finding the right advice as well as developing a thoughtful long-term plan can make a big difference between scrambling financially and feeling secure amidst times of great uncertainty. You’re not alone during this difficult time.
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