Financial Tips for (F)Unemployment - Aspiriant

6 Financial Tips for (F)Unemployment

So, you’ve been working at your company for a while, and you’re ready to move on to your next opportunity. Maybe you’ve already identified your next gig and want to take some time off between jobs to travel or relax. Or perhaps the pandemic hit your company hard, and they had to let you go. In any case, you probably have a lot of questions around how to best manage your money during this period of upheaval. Well, we’re here to help with a six-step guide to keeping your finances on track.

Step 1: Maintain adequate health insurance coverage —
Don’t let your coverage lapse

The last thing you want to experience is a health emergency without proper medical insurance or a steady income. Take time to understand how you may be able to keep the coverage you had under your previous employer, as well as health insurance options provided elsewhere. Once you have determined the best way to stay covered in the interim, develop a plan for maintaining coverage until your next job starts.

COBRA (Consolidated Omnibus Budget Reconciliation Act). You may be able to continue your existing coverage via COBRA. Under COBRA, you maintain the policy that you had with your previous employer. But instead of your employer paying all or most of the premium, you become responsible for the full cost of coverage and a potential 2% administration fee. Check with your former employer to understand if you’re eligible for COBRA. Here are a few other things to keep in mind:

  • You will have 60 days from the date your current coverage ends or the date you are furnished an election notice, whichever is later, to elect COBRA coverage.
  • COBRA coverage does not last forever, most people only qualify for 18 months of coverage.

The public option. If you don’t qualify for COBRA, or if it’s too expensive, you should look into obtaining a policy through the marketplace. Leaving or losing your job qualifies you for a special enrollment period.

PRO TIP: If you’d like help figuring this out, health insurance brokers are experts in navigating and reviewing all available options.

Step 2: File for unemployment —
Receive all the benefits that you’re eligible for

If you were let go from your previous employer, you may be eligible to collect unemployment benefits. Your state’s rules will determine your eligibility, as well as how much of a benefit you will receive. For example, in California, weekly unemployment benefits range from $50 to $450. Here are the high-level guidelines from the U.S. Department of Labor (DOL):

Unemployed through no fault of your own. If you left your job voluntarily, you may not qualify for unemployment benefits.

Work and wage requirements. States have minimum requirements for earnings or duration of employment.

Additional state requirements: California example (

  • Totally or partially unemployed
  • Physically able to work
  • Available for work
  • Ready and willing to accept work immediately

Step 3: Review your current expenses —
Understand your upcoming expenses

Since you no longer have an income, aside from potential unemployment earnings, you should take time to understand your current financial picture. This includes reviewing and understanding your non-discretionary and discretionary expenses.

Non-discretionary expenses. Basic expenses that you’ll almost certainly need to continue paying like rent, groceries and utilities.

Discretionary expenses. Expenses that you could cut back on like eating out, entertainment and vacations.

If you left your job voluntarily, hopefully you’ve already planned for some time without earnings. If your departure was unexpected and you aren’t certain when you’ll get another job, it’s more important to understand your upcoming expenses and the various sources you have for funding them. Read more about budgeting on fathom.

Step 4: Do you need money from savings? —
Develop a plan for funding your upcoming expenses

If you’ve planned for your departure, you may have already set aside funds to cover your living expenses until you start your new job. If not, here’s a guide of which savings accounts to pull funds from (in order):

Emergency fund. This is exactly why you want to have an emergency fund, ideally with three to six months’ worth of living expenses. By comparing the balance of your emergency fund to your estimated upcoming expenses, you can understand how long it will last until you need to begin earning an income again. Once your earnings do pick up, one of the first things you will want to do is fill the emergency fund back up.

Taxable Investment accounts. If your emergency fund doesn’t cover your spending needs, it’s best to turn to any taxable investment accounts next. Be mindful of the tax consequences of selling investment assets in these accounts to fund your living expenses.

Retirement accounts. If your emergency funds and taxable investment accounts aren’t enough to cover upcoming expenses, you may need to dip into your retirement accounts. There are a few ways to do this:

  • Hardship distribution. If you have an “immediate and heavy financial need,” you may be able to take a hardship distribution from your retirement account. You can only take the amount necessary to meet your need. Importantly, you’ll owe applicable ordinary income taxes on any amount that you withdraw, but you will not owe any penalties on this type of distribution.
  • Early withdrawal. You can also take an early withdrawal from your retirement plan(s). These withdrawals will be subject to penalties (the federal penalty is 10% of the amount withdrawn; states have their own rules) and applicable income taxes. Note that if you have a Roth retirement account, you can withdraw your contributions at any time without taxes or penalties, but you may have to pay taxes or penalties on withdrawals of earnings.

PRO TIP: The CARES Act of 2020 permits individuals affected by the coronavirus to withdraw funds from their retirement plans without penalties. Learn more about this.

Step 5: Understand your equity —
Don’t miss out on any equity compensation

If your former employer granted you restricted stock units or options or gave you access to an employee stock purchase plan (ESPP), you should understand the implications that your departure will have on those holdings.

Restricted stock units (RSUs). Any RSUs that have already vested will be long shares and are yours to keep. You’ll forfeit any unvested RSUs.

Stock options. If you’ve already exercised stock options, the shares that you purchased are yours to keep. You typically have a window of time (perhaps 30 to 90 days) after your departure to exercise any vested options. Unvested options are forfeited.

  • If you took advantage of an early exercise opportunity, you’ll need to understand how your leaving impacts your holdings, your company will likely buy back any unvested shares that you purchased under early exercise.
  • Some companies will extend the period under which former employees can exercise options. You should confirm this with your employer.

ESPP. If you’ve been participating in an ESPP, the shares that you’ve previously acquired are yours to keep. Shares acquired under these plans are subject to their own specific income tax rules so, before selling any shares, you should understand the tax consequences of doing so.

6. Rollover your 401(k) — Understand how
(and where) your retirement account is working for you

If you’ve been contributing to your employer sponsored retirement plan, you should consider rolling over those assets to your new employer sponsored plan or a rollover IRA.

Many people don’t realize that your employer will often cover 401(k) fees while you’re an employee; but once you leave, those fees will begin to be deducted from your account instead. Rolling over your account to an IRA can allow you to save money on fees and give you access to a broader range of investment options, some of which may be similar and less expensive than the options available in your plan.

If you have assets in a Roth 401(k), you’ll have to roll those funds into another Roth type account.

Making a smooth transition

Transitioning through unemployment can be a stressful time. But it’s much easier if you have planned ahead and know what you need to do to take care of yourself financially. A wealth advisor can be an important ally and someone you should certainly consult before taking action on any equity compensation or retirement savings. When money is less of a concern, you can concentrate on moving on to bigger and better things.