Losing your job and becoming one of the growing number of unemployed can be a shock to anyone. Even if you weren’t all that happy with your position, at least you had one. But once the shock of losing a job wears off, there are several things that you need to attend to. Some are obvious, and some require a bit of analysis.
File for unemployment benefits
First, you will want to file for unemployment benefits. Each state sets its own benefit amounts, eligibility requirements, and benefit length. Benefit amounts are based on a percentage of what you made during your last year of employment, up to the maximum in your state. Remember that unemployment benefits, like regular income, are taxable.
To determine your benefits, inquire at your state unemployment agency or, if the option is available to you, file for benefits online. Still, understand that it can take up to a full month before you will receive your first unemployment check.
Verify your termination benefits
The second thing you need to do is to verify what termination benefits your employer will provide. You may be entitled to severance pay, continuation of medical benefits, and possibly support in finding your next job. Take advantage of anything and everything your former employer offers in the way of help.
Obtain health coverage
Speaking of health insurance, you need to maintain your existing coverage or find a replacement insurance policy. If you worked for a company that had 20 or more employees, you’re eligible for COBRA. This federal law ensures that you can continue coverage for an additional 18 months, but you must pay the premiums for it yourself. With no employer contribution you may be quite surprised at how much money your continued coverage will cost you.
It’s important, especially if you have a pre-existing health condition, that you not let your health insurance lapse or you may find that pre-existing condition will not be covered under a new plan.
The recent federal stimulus program may cover 65% of the COBRA premiums for up to nine months, and that is certainly worth looking into.
Decide if you need life insurance
Your employer might allow you to continue to participate in the company’s group life insurance provided that you pay your own premiums. But life insurance might not be worth the expense if you have no dependents or your children are grown up and self-sufficient.
If you do want to keep your coverage through your former employer, you may be able to find less-expensive term plans on your own, though it will take a little homework.
Review your budget
After taking care of the necessities of health and life insurance coverage you may want to evaluate your budget to see where you can cut expenses. Depending on your field, your flexibility, how well you network and a host of other things – including a little bit of luck – your job search could take a year, or even more. That should be motivation enough to look for ways to save money.
Analyze your retirement plan options
What you should do with your retirement savings accounts is one item that requires extra care and analysis. If you withdraw funds from your 401(k) or 403(b) employer-sponsored savings plan, you will pay ordinary income taxes on that amount, and if you’re less than 59½ years of age, incur an additional 10% penalty.
If you transfer your employer’s retirement plan to an individual IRA by “rolling it over,” you will not have to pay any income taxes. Moreover, you can likely build a better portfolio, since you will have more investment choices in your IRA. Do this with care, by doing a trustee-to-trustee transfer. And by all means, consult a fee-only advisor to avoid high up-front commissions.
Once your money is safely ensconced in an IRA, you may be able to tap it without penalty, if you need it to cover large medical expenses or pay medical-insurance costs. For additional details, read this article.
How best to approach your job search and other tips on how to survive your unexpected unemployment will be continued in Part 2.