What To Do (and Not Do) After Being Laid Off

About 40% of U.S. workers will lose their job at some point in their career. Being laid off can leave you feeling rejected, sad, or even angry — even if you were let go for reasons beyond your control.

You may start to question your skill set. Was there something I could have done differently? Why did other people get to keep their jobs and not me? 

In addition to any strong emotions you may be feeling, there’s financial uncertainty to deal with. In most cases, you’re entitled to certain benefits after termination, including COBRA continuation coverage and access to your 401k. 

Here are two things you should avoid doing:

After being laid off, discharged or fired, it’s important to wait at least 24 hours, ideally longer, before taking any action. Give strong feelings time to dissipate so you can make important decisions with a clear head. 

#1 Don’t Start Your Job Search the Next Day

This may seem like an odd recommendation, but experts interviewed by the Harvard Business Review and Wall Street Journal advise taking at least a day or two to process the change. Don’t start firing out your resume the following day. 

#2 Don’t Cash Out Your 401(k) 

If you cash out some or all of your 401(k) and you’re not at least 59½ years old, it’s going to cost you in the short and long term. For example:

The net proceeds of a $50,000 withdrawal could be as low as $38,000 after:

• The 10% penalty for early withdrawal
• Federal income tax 
• State and county income tax (where applicable)

Sizeable withdrawals can also push you into a higher tax bracket. In other words, you’ll pay taxes on the withdrawal itself and the payout could cause your regular income to be taxed at a higher rate. 

Removing money from your retirement account also means you’ll lose out on potential long-term growth. If any of your holdings have dipped below your purchase price, you’ll lock in losses on those investments.

The better option? Roll over your 401(k) into an IRA, or leave your money where it is. If you find a new job with better investment options, you can roll over your old 401(k) into your new employer’s plan. Learn more about what to do with your 401(k) after leaving a job.

If you need money to avoid foreclosure on your primary residence or for certain medical expenses, some retirement plans permit hardship distributions. You can take money out without paying the 10% penalty; but, unfortunately, you still have to pay taxes on the amount you withdraw.

The SECURE 2.0 Act also allows penalty-free emergency distributions of up to $1000 per year from a 401(k), 403(b) or 457(b) account. Restrictions apply and the money must be paid back within three years.

What to Do After Being Laid Off

Now that you know what not to do, here are some positive steps you can take: 

#1 Don’t Be Too Hard On Yourself

Four in ten Americans have been laid off or terminated at least once. About 5.8 million people in the U.S. are laid off every quarter and the professional and business service sector has been hit especially hard in 2024.

Losing your job doesn’t necessarily mean you are bad at what you do or picked the wrong career. Economic conditions, management changes and other factors unrelated to personal job performance are often the reason companies reduce their staff.

That being said…

#2 Keep an Open Mind

Being laid off is an opportunity to try something new. It doesn’t have to be a new career — but it could be. Make a list of what you liked and disliked about your previous job or employer before hunting for another job just like it. A few things to consider include:

• Company size
• Ability to work remote
• Company location
• Ease of taking time off

#3 Surround Yourself with Supportive People

Bounce ideas off of friends, family and trusted mentors. If you’re considering a career change, leverage your network to connect with people who work in your field of interest.

A financial advisor can analyze your assets and spending and, with a few adjustments, you may be able to take some time off. Use the breathing room to travel, take classes, do whatever you need to do to get some distance before taking the next step in your career.

Continuation of Benefits After Termination

For many people, paying bills and maintaining health insurance coverage are the biggest concerns after being laid off. If you worked for a business with 20 or more employees, or a small business that is required to offer COBRA coverage in your state, you and your family may be able to stay on the health insurance plan provided by your former employer. If you had dental and vision insurance too, you may be able to maintain this coverage as well. 

COBRA Coverage

The U.S. Department of Labor (DOL) has a helpful Guide to Health Benefits Under COBRA (PDF) and an extensive FAQ. But here are answers to a few of the most common questions we get asked about COBRA:

What family members are covered by COBRA?

If an employee is eligible for COBRA continuation coverage, their spouse, former spouses and dependent children are too. 

Why is COBRA so expensive?

Employers typically pay some or all of their employee’s insurance premiums. With COBRA continuation coverage, the employee pays the full amount. 

You might want to consider health plans available on the HealthCare.gov Marketplace. Job loss is considered a qualifying event and you can apply for special enrollment within 60 days before or 60 days after losing your job-based coverage.

Does COBRA coverage begin immediately?

According to the DOL: “You have 60 days to enroll in COBRA once your employer-sponsored benefits end. Even if your enrollment is delayed, you will be covered by COBRA starting the day your prior coverage ended.”

How long can someone be on COBRA?

COBRA coverage can last a maximum of 18 to 36 months. The cutoff depends on the qualifying event and other circumstances.

What is considered a COBRA qualifying event?

COBRA coverage exists to support workers who lose their jobs through no fault of their own. If you were fired for misconduct, stealing, harassment, falsifying employment documents or other at fault circumstances, you may be denied COBRA benefits.

CareerOneStop, a resource maintained by Dept. of Labor, has more information about eligibility and how to file for various unemployment benefits.

Termination Pay

Some employers offer a severance package which may include:

• Salary continuation
• Pay for unused vacation days
• Assistance finding a new job
• Accelerated vesting of stock options
• A lump sum payment

You’ll have a period of time to consider the offer and, in some cases, negotiate. A financial advisor can evaluate the tax implications of your severance package and help you make an informed decision. 

Peace of Mind and Wealth of Life

We take a people first approach to financial planning. Our experienced wealth managers will take the time to get to know you before recommending financial strategies. We believe in helping clients achieve financial and personal fulfillment, we call it Wealth of Life.

Career transitions can be difficult, but you don’t have to navigate them alone. Contact us for a free consultation.

Related Reading:

• 3 Financially-Savvy Alternatives to Cashing Out Your 401(k)
• Are You Prepared for the 8 Most Common Financial Challenges?
• Multiple Retirement Accounts? Here’s What To Consider…