As layoffs accelerate among tech companies, investors and workers who lived through the dot-com bust may be feeling a sense of déjà vu.
In recent weeks, San Francisco-based Twitter slashed roughly half its workforce following Elon Musk’s takeover of the company.
based in Menlo Park, Calif., plans to cut 11,000 workers, about 13% of its workforce. And on Tuesday,
announced major layoffs. The
Calif.-based computer and printer company said it will cut up to 6,000 jobs to reduce costs. Other technology companies are reducing staff and freezing hiring.
There’s no good time to lose your job, but the current environment presents its own challenges in addition to the normal hurdles associated with unemployment. Inflation is rising, increasing costs of living, while stocks have tumbled, eroding savings. The economy may enter a recession next year, but even if it doesn’t, growth in certain sectors is slowing down, making it harder to land a new position.
Here’s what advisors say newly unemployed workers can do to bridge the gap between their last job and the next one, plus advice on handling 401(k)s and stock options.
Initial steps. First step after a pink slip arrives is to dig deep into the details of the package you’re offered by your employer. If you are receiving severance, it may be possible to negotiate the terms, depending on your job and the company. “Sometimes those are nonnegotiable, but sometimes they are negotiable,” advisor Jim Denholm says. “It doesn’t hurt to ask.”
Denholm, CEO of IronBridge Private Wealth in Austin, Texas, also suggests clients take advantage of whatever help is available. For instance, use outplacement services such as career counseling if your employer offers it. And apply for unemployment. It may not replace all your income, but some money coming in the door is better than none, advisors say.
You’ll also need to assess your health insurance options. For example, your layoff is likely a “qualifying event,” which would enable you to get on a spouse’s health insurance outside of the normal annual enrollment period. Under a federal law known as Cobra, workers who have lost their job and their families can choose to extend their current health insurance for up to 36 months. You may be required to pay the entire premium for coverage up to 102% of the cost to the plan.
Then, take a hard look at your expenses and sources of income, including how long any severance will last. Cut any unnecessary spending immediately.
If you’ve got a funding gap, try hard to avoid taking funds from your retirement account. Not only will you likely have to pay a 10% penalty for withdrawing funds early, but you’ll also be depriving your future self of income in retirement.
“Don’t touch your retirement accounts,” says Jeremy Sharp, financial planner and owner of Redeem Wealth in Gilbert, Ariz. “Look at other [investing] accounts.” If you sell holdings in taxable accounts, he advises looking first at whatever has done best this year to give other investments time to recover.
Managing options. Tech sector employees commonly receive options packages, but any laid off employees with stock options need to assess when to exercise them, factoring in what is permitted under their plan as well as what is optimal from a tax planning perspective.
“Usually, the way it works, upon leaving the company you have 90 days to decide what you want to do with the stock options: exercise and hold or sell,” says Frank Paré, president of PF Wealth Management Group in Oakland, Calif. He says it’s critical to talk to a financial planner and an accountant during this window of opportunity.
Since it’s the end of the year, it may make sense to exercise options and sell stock in January when you may have less income and therefore be in a lower tax bracket, Paré says. Combined with severance, it may give you more flexibility to meet your budget while job hunting. “There is always a financial planning element, driven by your goals and your existing expenses,” Paré.
Don’t forget your 401(k). Not sure what to do with your old 401(k)? You have several options, including rolling it over to an IRA or a new 401(k) plan when you land your next job. Regardless of which course you take, it’s critical that you evaluate the costs as well as the investment options available. Perhaps your old 401(k) plan has really low fees, but a limited selection of funds to invest in.
“I immediately default to rolling over your 401(k) into an IRA unless there are some really nice services in your existing plan,” Paré says.
If you opt for a rollover, make sure you meet any deadlines. “Find out if you can roll it directly to a new 401(k) or an IRA,” says Sarah Keys, an advisor in Denver with Wealth Enhancement Group. “Sometimes they’ll send it directly to the custodian or they’ll liquidate it and send you a check. The important thing to know about that is you have 60 days to redeposit it otherwise there are tax consequences.”
While deciding what to do with your 401(k) account is not as pressing as other needs during a layoff, there is a danger in putting off a decision. Pretty soon it can move to the back burner, and then drop out of mind entirely. Capitalize, a financial services company, estimates that as of May 2021 there are about 24 million forgotten 401(k) accounts holding $1.35 trillion in assets.
“People tend to lose track,” Keys says. “I know from my professional experience that when I get a new client, we consolidate accounts from old employers or that were left at other institutions.”
Stay on task. It can be easy, especially this festive time of year, to lose focus on the most important matter at hand: finding a new job. Denholm suggests laid off clients stick to a structured schedule and keep an eye out for new opportunities.
Even though we’re now officially in the holiday season, “You want to be getting your resume out there, looking at job openings,” he says.
But take some time out to consider other possibilities, as well. “Maybe you want to do some consulting or start your own business,” says Denholm. But keep in mind the need for cash flow. “Are there side hustles that might be able to bring in some income in the short term? That may be important if you have cash requirements. You want to stay on top of what the next phase of your life and career will be.”
Write to Andrew Welsch at firstname.lastname@example.org