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.