By Vince Clanton, CFP® & Scott Clanton, CFP®
Over the years, we have helped our clients to navigate the difficult times that come along with a corporate restructuring of the executive ranks. With unemployment claims now in the millions each week from COVID-19, and revenue uncertainties with all types of corporations, we expect this to be a more frequent issue. While the particulars of exactly what to do are unique to every individual and every family, there are some basic steps to take that will help someone find the next opportunity.
1. Assemble your Team
When you experience a major transition such as an unexpected job loss, remember that you do not have to face the challenge alone. Start to assemble your trusted team of contacts and friends who can help provide you support and guidance as you determine your next steps. This might include close friends and financial advisory team. Be sure to look for a CFP®, who has the training to help advise in areas relating to all of your related financial matters. From there you can start to assess your situation and begin making plans for how best to move forward.
2. Prepare for your Next Opportunity
Assuming you are not ready or able to retire, your primary responsibility after separation is to find your next position. Give your next position some “blue sky” thought. It could be similar to the job you left, or it could be a career that that you always wanted. Look for more responsibility! This is a great opportunity to reinvent yourself. Think about the generic skills that you have developed, and how they could be brought to a new employer in the same or a different industry to help advance the new company. Update your resume, and tailor it to a number of different applications of your skills. It seems to be common understanding that most employment comes as a result of a personal referral. To stimulate this, it’s important to reach out to your network with personal calls, and make sure that they understand that you are available, and what type of position would be a great fit for you. Ask them to please give some thought to what comes to mind, and how to proceed. Get more active with Linked-In, and make sure that your information is up-to-date. Research the prospective employer, their mission, and how you might help them before your interview. You may also want to engage a placement professional, and take good use of job sites.
3. Take Inventory of Your Financial Resources
- Severance Package: If you have been fortunate enough to receive a severance package, you will want to consider keeping enough cash on hand to fund expenses until you find new stable employment.
- Emergency Fund: Having an adequate emergency fund of at least three to six months worth of expenses is typically a good starting place, unless you believe it might be longer to find a new source of stable income. These funds should be liquid, not given to market volatility and easily accessible.
- Executive Deferred Compensation Plan: If you have access to this kind of plan, check with your employer and review the terms that dictate how these funds will be made available to you.
- Stock options: Options and stock grants generally expire with employment, but this is by contract with your former employer. Be certain to take advantage of them before your termination effective date, and add the proceeds to your severance package.
- Investment Account(s) – Individual, Joint, and Employee Stock Purchase Plan Brokerage Accounts may be sourced with a tax bite that is smaller than a withdrawal from a retirement account. Taxes are incurred on realized gains or profits, but not on withdrawals. You may want to evaluate any investment concentrations such as large equity positions in your former employer’s stock, and convert risk assets that you think will be needed within a short time period to cash.
- Your IRA and 401(k) balance. If you anticipate needing to use these resources remember that withdrawals are taxable income if taken from a Traditional IRA or 401k. Due to the CARES ACT of 2020, the penalty for withdrawing funds before age 59 ½ has been temporarily waived. The payment of tax can be made at any time within 3 years of the withdrawal, and funds may be replaced at any time during that same period, and will be treated as a 60-day rollover. If your time frame to use your IRA, and 401(k) funds is within a year, consider converting what you might need into cash, or money market funds. You may want to consolidate your 401(k) balance, with other 401(k) balances from previous employers into a Traditional Rollover IRA. There are a number of good reasons to do this, but you need to also read the disclosures that your 401(k) custodian will provide.
- Roth Accounts: If you have Roth IRA or 401(k) balances, these should be among the last sources to provide for you until your next assignment.
4. Look critically at your expenses
It is important to look carefully at what expenses you have and identify where your money goes in a normal month. Identify expenses as Extremely important, Important, Discretionary, and Very Discretionary. Eliminate as you can spending in the last two categories. Rent, mortgage payments, and utility payments may be deferred in this CV-19 environment. Check with your mortgage servicer, landlord, and utility provider for details.
5. Don’t forget about Health Insurance
Your company-sponsored health care generally expires on the last day of the month in which you are terminated. If you have a spouse with coverage available through their employer, job loss is a qualifying event that allows you to begin coverage, or add to existing coverage with the spouse’s employer. If that is not available, taking advantage of COBRA is generally an effective stop-gap for up to 18 months following separation from service, but requires you to make the election within 30 days of termination of employer coverage. Your monthly premium will jump from your previous contribution to coverage, as COBRA allows the employer to add 2% as an administrative fee to the total cost of coverage. The total cost will include the employer and employee contributions! Read the information your employer gives you on this topic and do not be late with your premium payment, as this allows the employer to discontinue your coverage without reinstatement. Another option might be the ACA Exchange at Healthcare.gov. Job loss is a qualifying event that allows you to start new coverage on the ACA Exchange.
Stay positive! “As one door closes, another opens!” If we can be of assistance to you or a close friend or family member, please let us know at chancellorwealth.com.
The commentary is informational in nature and not intended to imply a specific strategy or course of action. Investment advice and recommendations are only provided according to each individual’s personal circumstances. Chancellor Wealth Management is an investment advisor firm registered pursuant to the laws of the state of Georgia. The firm is also registered to conduct business in the states of South Carolina and Texas. Copyright © 2020 Chancellor Wealth Management, All rights reserved.