Losing a job is a gut punch. Even when it's a company-wide cut that had nothing to do with performance, it's hard not to take it personally. There's the worry about money, the calls to family and friends, and the strange quiet of a weekday with nowhere to be. All of that is normal, and none of it says anything about what comes next.
What helped the people I've watched go through it was a short list of what actually needs to happen, in order. That's what this is.
A layoff starts several clocks at the same time. Unemployment benefits, health coverage, the severance paperwork and the old 401(k) all have their own deadlines, and most of them start the day the job ends. The first month is mostly about not missing one.
A few words first
- Severance: pay a company offers on the way out, usually in exchange for signing a release.
- Release of claims: a document that gives up the right to sue the company. It's usually what severance is paid for.
- Unemployment insurance: weekly benefits from the state for people who lost a job through no fault of their own.
- COBRA: short for the Consolidated Omnibus Budget Reconciliation Act, a federal law that lets someone keep the employer's health plan after leaving, usually for up to 18 months. The employer stops paying its share, so the cost is the full premium plus up to 2%.
- Runway: how many months savings can cover the bills.
The first 48 hours
- The severance agreement can wait a day. Most agreements give time to review. The thing to read first is what's being given up, usually the right to sue, and what's being paid in return. The company is paying for a promise not to sue, and that trade is why the terms are often negotiable. A deadline to sign isn't the same as pressure to sign today. When something in it is unclear, having an employment lawyer review it before signing is common, and it's what I'd do. More in Severance and Unemployment.
- Filing for unemployment can't. Each state runs its own program. The U.S. Department of Labor says the first payment generally comes 2 to 3 weeks after filing.
- Write down the dates. The last day of work, the day health coverage ends, and every deadline in the severance paperwork.
- Keep what's personal. Personal contacts, my own performance reviews and pay stubs. Company files stay with the company. That includes work I built myself, like models, decks, code and client lists. It can feel like mine, but it's company property, and most employment agreements say so. People have gotten into real trouble, and put their severance at risk, for emailing files to a personal account on the way out.
Week 1
- Health coverage. It often ends on the last day of work or at the end of that month. The two main options are COBRA and a plan from the ACA (Affordable Care Act) Marketplace. I compare them in COBRA vs. the ACA Marketplace.
- Final pay. When the last paycheck lands, whether unused PTO (paid time off) gets paid out (state law and company policy decide), and any bonus already earned.
- The bare-bones budget. Only what has to be paid: housing, utilities, food, insurance and minimum debt payments. That total is the monthly burn.
The runway number
Runway is cash divided by monthly burn. $30,000 in savings against $5,000 a month of essentials is 6 months. Expected severance and unemployment benefits stretch it further.
This is the reason I keep a bigger emergency fund than the usual 3 to 6 months. A year of expenses turns a layoff from a crisis into a hard stretch. More in You Need More Than 3 Months, and the Emergency Fund Calculator runs the math.
Treating the search like a job
Without a schedule, a job search spreads across the whole day. It's 1 a.m., the same resume has gone out 12 times, and tomorrow looks the same. That pace burns people out right when interviews need them sharp.
The people I've seen handle a layoff best gave the search set hours, something like 9 to 2, and planned the week like work: a target list of companies, outreach to people they know, applications, interview prep, and time for a skill they'd been meaning to build. When the block ended, they stopped.
A search that runs 6 to 8 weeks is normal. Taking the first few days off before any of it starts isn't lost time.
Weeks 2 to 4
- Pause the extras. Subscriptions, dining out, and travel that isn't paid for yet. They can restart with an offer.
- Keep every minimum payment current. A missed payment hurts credit right when it might be needed.
- Leave the 401(k) where it is for now. Cashing it out means income tax and usually a 10% penalty before 59½. Leaving it in the old plan or rolling it to an IRA (individual retirement account) are the usual alternatives. The options, and what each one costs, are in Your Old 401(k).
- Spend in this order: cash first, then cuts, then everything else. Retirement money is last.
Contract work in the meantime
Contract or part-time income stretches the runway, but it can reduce unemployment benefits for the weeks it's earned. Every state requires reporting it, exactly as its rules say.