Tech Layoffs Are Rampant. Heres Smart Financial Advice If You Lose Your Job.
As layoffs at tech companies accelerate, investors and workers who survived the dot-com crash may feel déjà vu.
San Francisco-based Twitter has shed half its workforce in recent weeks after Elon Musk took over the company. Meta , based in Menlo Park, Calif., plans to cut 11,000 jobs, about 13% of its workforce. And on Tuesday , HP announced massive layoffs. The Palo Alto , California -based computer and printer company said it would cut 6,000 jobs to cut costs. Other tech companies are shedding and hiring.
There is no perfect time to lose a job, but the current environment has its own set of challenges in addition to the usual obstacles associated with unemployment. Inflation rises, raising the cost of living while stocks fall and savings are wiped out. The economy could enter recession next year, but even if it doesn't, growth in some sectors will slow, making it difficult to break new ground.
Here are tips on how new unemployed people can bridge the gap between their last job and their next, as well as tips on dealing with 401(k)s and stock options.
first step. When a notice of termination arrives, the first step is to study the details of the package your employer is offering you. If you receive severance pay, you can negotiate the terms depending on the position and company. "Sometimes it's non-negotiable, but sometimes it can be negotiated," says consultant Jim Denholm. "There's no harm in asking."
Denholm, CEO of IronBridge Private Wealth in Austin, Texas, advises clients to seek any help available. For example, use outplacement services such as careers counseling if your employer offers them. and an unemployment benefit. It may not replace all of your income, but cash is better than nothing, advisers say.
You should also review your health insurance options. For example, your termination would be a "qualifying event" that would allow you to purchase your spouse's health insurance outside of the regular annual enrollment period. Under a federal law known as COBRA, workers who lose their jobs and their families can extend their current health insurance coverage by up to 36 months. You will have to pay the full insurance premium set by your previous employer and you may have to pay an additional 2% to cover administration costs.
Then view your expenses and income streams in detail, including the length of your vacation. Immediately reduce unnecessary expenses.
If you have a funding gap, do your best not to withdraw money from your retirement account. Not only do you have to pay 10% in advance, you also lose future retirement income.
"Don't touch your retirement account," says Jeremy Sharp, financial planner and owner of Redeem Wealth in Gilbert, Arizona. "Look at other [investment] accounts." If you've sold investments in a taxable account, he recommends focusing on what's working best this year to give other investments time to recover.
parameter management. Technology employees typically receive option packages, but any employee receiving stock options should consider when to exercise them, considering what is allowable in their plan and what is best from a tax planning perspective.
"Typically, it works like this: After you leave the company, you have 90 days to decide what to do with the stock options: exercise and hold or sell," said Frank Pare, president of PF in Oakland, California. asset management group. . He says that in such cases, it's very important to talk to a financial planner and an accountant.
Since it's the end of the year, you may want to exercise your options and sell your shares in January when your income may be lower and therefore you may be in a lower tax bracket, Pare said. Along with severance pay, it can give you more flexibility in finding work that fits your budget. "There's always an element of financial planning that's driven by your current goals and expenses," says Parr.
Don't forget your 401(k) . Not sure what to do with your old 401(k)? When you get your next job, you have several options, including moving to an IRA or a new 401(k). Regardless of which course you choose, it's important to weigh the cost and the investment options available. Your old 401(k) plan may have very low fees but limited investment options.
"I recommend moving your 401(k) to an IRA immediately if your current plan isn't providing good service," says Pare.
If you decide to extend, make sure you meet the deadline. "See if you can move to a new 401(k) or IRA," says Sarah Keyes, a Denver-based consultant with the Wealth Enhancement Group. "Sometimes they'll send it straight to the custodian or settle it and send you a check. The most important thing to know about this is that if there is no tax impact, you have 60 days to resubmit it.”
While deciding what to do with your 401(k) account upon termination isn't as important as other needs, there is a risk that the decision will be delayed. Soon it can recede into the background, and then completely disappear. Financial firm Capitalize estimates that by May 2021 there will be 24 million abandoned 401(k) accounts with $1.35 trillion in assets.
"People lose track," Key said. "I know from my professional experience that when we have a new customer, we consolidate the accounts of old or discontinued employers from other companies."
staying at work It's easy, especially this holiday season, to lose focus on what matters most: finding a new job Denholm advises clients to stick to a structured schedule and keep an eye out for new opportunities.
Even though it's officially holiday time, "when you're looking at job openings, you want to have your resume ready," she says.
But take the time to consider other options as well. “You might want to become a consultant or start your own business,” says Denholm. But think about the cash flow requirements. "Do you have a part-time job that allows you to earn money in the short term? This can be important if you are in financial distress. You want to be at the top of the next phase of your life and career."
Email Andrew Welsh at Andrew.welsch@barrons.com
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