I lost my job. How can I stay on track financially?
Managing financially following a job loss may require negotiating a severance package with your former employer, filing for unemployment compensation, arranging for continuation of health insurance, keeping your retirement assets invested, and, for those aged 62 or older, deciding whether to collect Social Security benefits.
Income stream
First, do what you can to generate an income stream that will pay for food, housing, and other necessities. Many employers offer severance programs in which former employees continue to receive a salary after a layoff for a period of time determined by the employee's length of service. If your employer has not offered a severance program, try to negotiate one. Also determine whether you qualify for unemployment compensation. There may be a waiting period before collecting benefits, and applying as soon as possible could expedite your claim. If you are a union member, determine whether union programs may be available to help you.
Health insurance
If you were covered by an employer-sponsored health plan at an organization that employed 20 or more people, you may be eligible for continuation of health coverage required by the Consolidated Omnibus Budget Reconciliation Act (COBRA).Footnote 1 Historically, laid-off workers who elected COBRA coverage were required to pay the full premium, which usually was significantly more than they paid when they were employed.
Retirement assets
If you participated in an employer-sponsored retirement plan, determine your options.Footnote 2 Keeping this money invested could increase the chances that the money will earn positive returns and could be a potential source of income when you retire. When an employee separates from service, taking a cash distribution prior to age 59½ (55 in some circumstances) triggers income tax payments and a 10% additional federal tax. Even if you are older than age 59½, consider leaving the money invested for your future.
Social security
Individuals aged 62 or older may be eligible to collect Social Security. If you are in this age group, consider your decision carefully because the age when you begin Social Security benefits has a significant bearing on your financial future. Depending on your full retirement age, starting benefits at age 62 could result in a reduction of your monthly payment by as much as 30%.Footnote 3 Waiting until closer to your full retirement age, if you are able to do it financially, could leave you with a higher benefit during your later years.
Creating an ongoing income stream, maintaining health insurance, keeping your retirement assets intact, and, if applicable, investigating Social Security benefits could help you stay on track financially.
Footnote 1 Source: U.S. Department of Labor, Employee Benefits Security Administration, FAQs About COBRA Continuation Health Coverage.
Footnote
You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information visit our rollover page or call Merrill at 888.637.3343.
Footnote 3 Source: Social Security Administration.
Footnote
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The material was authored by a third party, DST Retirement Solutions, LLC, an SS&C company ("SS&C"), not affiliated with Merrill or any of its affiliates and is for information and educational purposes only. The opinions and views expressed do not necessarily reflect the opinions and views of Merrill or any of its affiliates. Any assumptions, opinions and estimates are as of the date of this material and are subject to change without notice. Past performance does not guarantee future results. The information contained in this material does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any recommendation in this material, you should consider whether it is in your best interest based on your particular circumstances and, if necessary, seek professional advice.
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