When one curtain closes another curtain opens.
Listen on: Apple – Spotify – Soundcloud
If you recently lost your music industry job, I’m sorry for your loss. Things will get better.
If you’re here to prepare for a potential layoff, I hope you never experience one.
How to navigate a recent layoff
First steps after job loss
Emotions
It’s important to address your emotions during a life transition.
The “passage” represents the time after the “ending” (of a job) and before your “new normal.” There are many feelings and emotions during this time which can hinder logical decision making. Take time to notice your feelings before moving on to the next step.
Give yourself grace, take a walk, get a massage, meditate. Ground yourself in the moment and accept this transition for what it is… temporary.
Before your last day
Review original offer letter
Are there any limitations, contingencies, or triggers upon losing your job?
Are you allowed to communicate with clients?
Is there any language around layoffs?
What information can you bring with you?
Are you owed anything based on years employed?
Understand what is and is not permissible.
Look for opportunities.
Review severance package (if offered)
Many companies will provide some form of reprieve to those affected by layoffs. Recent examples include Riot Games and Spotify.
Review the terms of continuing payment, medical benefits, vested stock and career support.
*When preparing for a layoff or job change, consider negotiating a severance package in advance. Sam Dogen, from Financial Samurai, writes extensively about how to do this.
Download pay stubs
Your final pay stub will show:
- Total income
- Taxes withheld (federal, social security, medicare)
- Contributions to retirement accounts
This information is crucial for tax purposes and coordinating with your new job. (More on this later.)
Download retirement statements
Retirement accounts include:
- 401(k) plan
- 403(b) plan
- 457(a), (b) or (f) plan
- Health savings account (HSA)
- Flexible spending account (FSA)
- Dependent care FSA
- Pension
- Stock options
Retirement statements will show:
- Total balance
- Employer and employee contributions
- Traditional and Roth holdings
- Investment allocation
- Pension payout calculation
- Exercisable stock options
You will need these statements in the event you roll any retirement accounts either to your new company plan or into a Rollover IRA. (More on this later.)
Transfer and update contact info
Your network is vital. Keep in contact with colleagues, clients and vendors (if permissible).
Did you set up any personal services through your work email or credit card? Make sure to change usernames and payment information before losing access.
Return company property
Do you need to replace any work equipment like computers, phones, tablets, cars, etc.?
Thank your employer
Leave with gratitude and your head held high. You never know what may come in the future!
After your last day
File for unemployment
Do this first. You can learn how to file in this U.S Department of Labor guide. The process will vary based on your state.
Take time for yourself
Remember, you are in the “passage” stage and it may take time to feel ready to start looking for your next opportunity.
Update your resume and public databases
Think of all the awesome value you provided at your previous company and express that in your resume. If comfortable, update your LinkedIn and share the news with friends, family and colleagues. You are likely to receive much needed support and a new curtain may open!
Cash flow considerations
Measure your cash flow
Measure your cash flow to map out your expected income and expenses. This information is vital to make sound financial decisions in the months ahead.
Fixed expenses
Make a list of all your fixed expenses that must be paid on a regular basis including:
- Rent/mortgage payments
- Insurance premiums
- Debt payments
- Bills and utilities
- Food
- Transportation
- Business expenses
Emergency fund
Use your emergency fund on fixed living expenses to give ample time to find the right next job. An adequate emergency fund removes the pressure to accept the first offer that comes your way.
*When preparing for a layoff or job change, bolstering your emergency fund in advance is vital.
Time horizon
How long do you…
- want to find your next opportunity?
- think it will take to find it?
- have financially until you need another job?
Other income sources
Do you have passive income or other projects providing income?
Does your partner or spouse earn income?
Do you want to pursue an additional source of income aside from your job?
Career change or hiatus
A job layoff may be a blessing in disguise. Maybe you want to change careers or roles within the music industry. Or maybe time away from the industry altogether. Take this transition as an opportunity to change the direction of your life for the better.
Insurance essentials
Qualifying life event
Job loss is a qualifying life event which allows you, your spouse or domestic partner and dependents to make changes to employee benefits. You can switch over to your significant other’s insurance or sign up for independent insurance up to 60 days from your last day of work.
Health insurance
If you do not have a partner with desirable insurance benefits there are four options for health insurance.
Healthcare.gov – Affordable Care Act “ACA”
The ACA provides affordable health insurance with a potential for premium assistance from the government (premium tax credits) which is based on expected income.
COBRA allows you to continue health coverage from your recent employer for up to 18 months. In this scenario you must pay the premiums previously paid by you and your employer plus a 2% administration charge.
If you cannot get ACA or COBRA insurance than some states offer short-term health insurance. These plans are meant for temporary gaps in health insurance.
Medicaid is for low-income families and individuals. Qualification varies by state.
Disability insurance
Most employer paid disability insurance policies are not portable. Meaning you cannot bring them with you. Unfortunately this results in loss of disability coverage.
If the policy is portable then continue paying the premium to keep the policy in force. Work with your financial planner to help navigate the details.
*When preparing for a layoff or job change, consider getting a supplemental independent disability policy while employed. You can bring the policy with you and the benefit is tax-free.
Life insurance
Employer paid group life insurance ends after a job loss. However many voluntary life insurance policies are portable since you pay the premium. Keep paying the premium to keep the policy in force.
Consider getting independent life insurance quotes based on your family needs. Again work with your financial planner to get this right.
Retirement strategies
401(k), 403(b) 457 and SIMPLE IRA plans
Employer sponsored retirement plan funds are yours. The company will no longer match and your ability to make changes may be limited.
Check your statement to verify what company match contributions are vested. You are not entitled to any unvested matching dollars inside the plan.
You have 3 options:
- Leave funds in your previous employer plan
- Roll funds to a Rollover IRA
- Roll funds to your new employer plan
Consider the following:
- What are the plan administration fees?
- What are the available investment options?
- What are the investment fund fees?
*SIMPLE IRA plans require a 2 year waiting period before rolling to a non SIMPLE IRA plan.
Vested stock
You may have vested stock options and/or stock holdings from:
- Restricted stock options (RSUs)
- Incentive stock options (ISOs)
- Non-qualified stock options (NQSOs)
- Employee stock purchase plans (ESPPs)
You may have the option to exercise vested company stock and/or take vested stock with you. Consider any tax implications of exercising and/or selling vested stock.
Work with a financial planner to analyze your options and make sure transfers are executed properly.
Private share forced sale
There are situations where a private company forces the sale of your vested stock options. Double check your original offer letter and stock option plan documents to see if this applies to you. A forced sale may cause unintended tax consequences.
Deferred compensation
Deferred compensation (DC) is an employee benefit offered to directors and officers. DC plans allow you to set aside a portion of current salary and/or bonus in a non-qualified account that pays out at a later date.
This strategy allows you to lower tax liability in high earning years and defer into the future. Deferred compensation is paid out in one lump sum or over a period of time.
However a layoff may trigger a pay out upon termination. This leads to a large sum of money you were expecting later in life to payout today.
Consider the tax implications and what to do with the money.
HSA
Contributions to a company sponsored HSA (Health savings account) plan will end on your last day of work. Your ability to continue contributing relies on your health insurance decision.
Continuing current coverage through COBRA or switching to a new high-deductible HSA-eligible health plan will allow continuing contributions to your HSA.
Losing health coverage or switching to a non HSA-eligible health plan will end your ability to contribute.
Your maximum HSA contribution amount is calculated pro-rata based on how many months you participated in HSA-eligible health insurance coverage.
Dependent care FSA
Dependent care FSA (Flexible spending account) contributions require employment with a company that provides this benefit. The loss of your job ends the ability to continue contributing.
Funds are “use-it-or-lose-it” meaning you must reimburse yourself for dependent care expenses incurred every year. The typical deadline to reimburse is March after the year of contributions. (March 2024 deadline for 2023 expenses)
Loss of employment shortens the deadline to 30 – 90 days after your last day. You must either reimburse yourself for dependent care expenses or transfer funds to a personal account before this new deadline. Otherwise the company will keep your contributions and close the account.
Check your summary plan description (SPD) to review the rules that apply to your situation.
IRA contributions
Your ability to deduct Traditional IRA contributions is dependent on whether you and/or your spouse are covered by a retirement plan at work.
Review this IRS table if you are NOT covered by a retirement plan at work and your spouse IS.
Other benefits (legal services, discounts)
Check the rules and status of any other benefits including legal services, discounts, or memberships. You may have the option to purchase a continuation if desired.
Coordination between jobs
Before completely forgetting about your old job, consider the following once you find a new opportunity.
Social security
Social security tax (6.2%) is withheld from your pay stub up to the “maximum taxable earnings” which changes every year. Your new job will not know how much social security tax was withheld at your old job in the same calendar year.
| 2023 | Old job | New Job | Total | SS maximum |
|---|---|---|---|---|
| Months employed | 6 (Jan – June) | 5 (Aug – Dec) | 11 | |
| Income earned | $100,000 | $90,000 | $190,000 | $160,200 |
| SS tax withheld | $6,200 | $5,580 | $11,780 | $9,932.40 |
In this example neither employer stopped withholding social security tax because the maximum taxable earnings ($160,200 in 2023) was not reached. Creating an excess withholding of $1,847.60 ($11,780 – $9,932.40).
There is no way to prevent this, but you can claim the excess as a credit against your income tax when filing.
Retirement plan contributions
Retirement contributions are uncoordinated between jobs. There are annual maximum contribution limits to qualified retirement accounts.
Over contributing in a calendar year can lead to penalties.
| 2023 | Old job | New job | Total | Maximum | Excess |
|---|---|---|---|---|---|
| 401(k) contribution | $15,000 | $12,000 | $27,000 | $22,500 | $4,500 |
You can adjust retirement contribution elections anytime. Here is how to avoid excess contributions:
- Review your last pay stub from the old job to see how much you contributed thus far.
- $15,000 contributed
- Subtract the maximum allowed from this number to calculate your remaining allowed contribution.
- $22,500 – $15,000 = $7,500 remaining allowed
- Assume you begin the new job in August with twice a month payments. Divide that number by the remaining number of pay checks.
- $7,500 / 10 = $750 per paycheck
- If your new employer requires a “% of salary” amount, then calculate your total remaining allowed contribution divided by your expected remaining salary.
- ($7,500 / $90,000) X 100 = 8.33% of salary
- Log in to your employee benefits to change your retirement contribution election.
- Reset your desired contribution at the start of your first full calendar year of employment.
Work with a financial professional to get this right.
Another qualifying life event
Getting a new job is another qualifying life event. You and/or your spouse can make changes to benefits that best suite your family needs.
This is a great time to review employee benefits and take advantage of missed opportunities.
Summary
These are the crucial topics I consider as a financial planner when helping my clients. I hope you found this guide helpful.
Please do not hesitate to reach out with questions or leave a comment.
Keep thriving,
Spenser
