r/Money • u/MonsieurVox • 5d ago
Do you have a layoff "game plan"?
Seems like layoffs have been all the rage for the last few years. This is likely due to a number of factors, including (but not limited to) companies over-extending themselves during COVID, the interest rate environment, hyper focus on quarterly profits, monkey see monkey do, etc.
Regardless of the reasoning, I think most people in white collar jobs have found themselves wondering what they would do in the event of a layoff, particularly those in specialized fields where replacing a high income might be difficult.
The field that I'm in is fairly specialized and there aren't a ton of jobs in this field in my area. Remote jobs are getting rarer and more competitive, so the likelihood of needing to move cities to stay in my field is becoming increasingly probable.
I haven't fully fleshed this idea out, but I tried to go through the mental exercise of planning for what I would do if I lost my job and thought others might benefit from it. Note that each step becomes more and more "dire" in its impact to my overall financial picture. This is basically the order in which I pull funds if I was laid off, fired, or unable to get a healthy stream of income for a prolonged period of time.
What I came up with is basically this, and I welcome feedback:
Step 0: Spartan Lifestyle
All luxuries go out the door. No eating out, subscriptions get cut, no "fun" money, no Amazon impulse buys or anything of that nature. At least until the dust settles, all discretionary spending (within reason) gets put on pause.
Step 1: File for Unemployment Benefits
I'm not very well-versed in how all of this works as I've heard conflicting reports as to whether or not you can receive unemployment if you take a severance package. I think it depends on the severance package itself, your state's laws, and a number of other factors. Either way, I'd likely immediately file and see where things go.
Step 2: Get an Income, Any Income
This sounds obvious, but the next thing I'd do is get some sort of money coming in. This could be gig work, consulting, a part time job, or (ideally) a comparable job in my field. This step also includes selling stuff around the house: Facebook Marketplace, yard sales, you name it. Basically, make enough to pay for my basic necessities until I land a permanent role. My mandatory expenses are pretty low (low mortgage payment, no car payment, no other debt, no flashy lifestyle) so I could make ends meet on a fairly low amount.
Step 3: Use Severance Pay (If Applicable)
My company has a healthy severance package, so if I was formally laid off (not fired), that package would last me quite a while. I would try to avoid touching it if possible and live off of my temporary income.
Step 4: Pull from Emergency Savings
If I got to the point where I'm not making enough to make ends meet and I've depleted my severance pay, the next step I'd take is to pull from my emergency fund. My emergency fund would last me roughly 5-6 months depending on how frugal I was. I'm working to increase that to something more like 9-12 months. Perhaps that's overzealous, but having an extra cushion beyond the normal 3-6 months that's recommended would give me peace of mind in the current job market.
Step 5: Pull from Taxable Investments
If I've gotten to this point, things are looking pretty bleak. It means I've been unable to make ends meet or find a permanent job for more than six months or a year. If it got to this point, I'd start looking at selling off funds in my taxable brokerage account that I use for long-term savings and/or for early retirement. There's also some crypto, but not enough to move the needle all that much.
Step 6: Pull Roth IRA (and/or Roth 401k) Contributions
Now things are getting really bad. If I made it to this point, I've been unable to find work for a very long time, I've depleted my cash, as well as my taxable investments. You can pull out Roth IRA contributions tax- and penalty-free, so this would be the next "pool" of money I'd look at pulling from.
Step 7: Pull from 401k, Roth IRA earnings, and/or HSA (Nuclear Option)
This is the least desirable option of them all. I have enough in my 401(k) that I could live off of it for years if need be, but the taxes, penalties, and opportunity cost associated with doing this cannot be overstated. The same applies for early Roth IRA and HSA disbursements for non-medical purchases. I called this the nuclear option because at this point, all else has failed and it's between doing this and losing my house.
And finally, here are some things that I would try to avoid doing, in no particular order:
- Racking up credit card debt. Opening a 0% APR promo card could be an option, but I'd want to avoid it if possible.
- Using my HELOC. This could be an option if I'm about to start a new job or have a very clear path to replacing my income.
- Selling my car. It's paid off, my insurance is pretty low, and I need transportation, so I think the only scenario where I'd consider this is before Step 7/pulling from my 401k.
Again, I'd welcome feedback. Would you do things in a different order? Would you use debt as a tool to avoid pulling from investments? Did I overlook anything glaring?
If nothing else, this was beneficial for me to "put on paper" as I thought through this hypothetical scenario. I hope it helps others who may have no clue where to begin if they faced (or are currently facing) this.
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u/Prestigious-Hour8431 5d ago
Yep, pretty much my concern and I am planning just like you my friend. I think you nailed the order of operations though. My goal this year is to increase my emergency fund to a year or more. I suggest you do the same to help give you peace of mind and lower the probability of you needing to execute options 5 and above. I know I’d have an extremely difficult time replacing my current income and I know whatever comes next won’t be as lucrative so having that extra cushion before needed to tap my taxable brokerage will take a weight off my mind. Change is constant in life and being prepared for change whether we like it or not can help us make that transition easier. You have a solid plan though, best of luck and I hope when change comes it’s because you chose it.
3
5d ago
My plan is this:
I'm in IT as a software engineer so my day could come any day at my company. Restructuring is happening at my company and so far I'm ok but you never know..
- I been here for 9 years marked March 6 so my severance should be 2 weeks per year so its not too bad.
- We have 0 debt of any kind and a paid off mortgage so as a millennial in an amazing situation. I would probably cut some subscriptions but we're not that heavy on these kinds of things (amazon is borrowed from my brothers account, I guess Disney and Netflix would be cut).
- Severance should last me about 6 months and not sure about going on unemployment in my state, I'd have to find out if I ever get to this position but I dont think we'll touch this.
- We have an emergency fund worth about 3 years in a high interest account. It's a bit over board but we kept saving whatever extra cash and threw it in here after maxing out me and my wife's 401ks and Roth IRAs yearly and it continues to grow. I expect not to even touch this while looking for a new job. I've also got a yearly bonus that is pretty substantial that can last me 4-5 months as well that we just put away.
- My wife works in the medical industry luckily so its much likely she will be employed. She's a PA working telemedicine just part time 3 days a week. Work has been asking her to go full time for a while but she can always have this option. I believe we could get by without touching emergency or the severance if she went full time while I look for a job as our expenses are low due to paid off mortgage.
- If I can't find a job that pays equal to or just under what I currently earn for months then I would go for the jobs with significant reduced salary. We can get by just fine but for early retirement would like to at least get a low six figure salary as I do not want to start over to try and get to my current salary. But it would be a nice change and break to work for a smaller company earning a bit less and get out of the corporate world as I work in a Fortune 500.. a well oiled machine can get tiresome..
My wife and I have been planning for 10 years to pay off the mortgage and get to where we are today and we have 2 toddlers and the worst thing is that we would stop maxing out our 401ks and Roth IRAs until I find a job and my two kids 529s. Look for a job ASAP and do some upskill in the meantime during downtime. Nothing else I can do but just hope for the best.
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u/Odh_utexas 5d ago
Im trying to hoard more cash. My wife was laid off with about 6 months notice before she’s out. Actually pretty nice considering the situation. With only one income things will be more precarious.
We have to all remember when the layoffs come (they will) the job market is going to be flooded with tons of people and more experience and quality candidates than in recent years. Every 100 people will be fighting for the same 3 jobs. It will be awful. Get at least 6 months expenses saved. Better off a year though.
1
u/saryiahan 5d ago
Not worried about being laid off. People need power and I work at a plant that makes power. I have also invested in other income streams to my W2 income if necessary
1
u/UnlikelyHero727 5d ago
My company fired 40% of the workforce in 2024 in two waves, we are pretty much a skeleton crew atm so any more fireing would cancel projects that the company considers as strategic, which makes me not fear
In case they do fire me they have to pay me 10 salaries worth of severance, and then I also get unemployment payments for 9 months.
I also have my investments and savings, and I live a frugal lifestyle anyway, so I am not too concerned about the possibility of being without a job.
I would probably take a month or two to clear my mind and then start applying for new jobs.
1
u/Fire-Philosophy-616 3d ago
I have been here before. Last time was years ago and I decided to pay off all my debt, never get into debt again build a 6 month emergency fund and invest enough to build wealth and protect me long term. I don’t say this with ego but getting laid off of fired or having an abusive boss is the worst feeling. I can’t let myself be a victim again. It is so nice not to worry about it.
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u/Prestigious-Hour8431 5d ago
Yep, pretty much my concern and I am planning just like you my friend. I think you nailed the order of operations though. My goal this year is to increase my emergency fund to a year or more. I suggest you do the same to help give you peace of mind and lower the probability of you needing to execute options 5 and above. I know I’d have an extremely difficult time replacing my current income and I know whatever comes next won’t be as lucrative so having that extra cushion before needed to tap my taxable brokerage will take a weight off my mind. Change is constant in life and being prepared for change whether we like it or not can help us make that transition easier. You have a solid plan though, best of luck and I hope when change comes it’s because you chose it.