When Clients Are Laid Off, How to Ease the Sting: Advisors' Advice

2. Maximize any equity comp.

I do a lot of work with clients with equity compensation. Most plans have 90-day periods for them to exercise their options once they leave. Clients have a risk of losing the options if not exercising before the 90 days.

Depending on the severance agreement, you may be able to extend this until end of a year or to an additional 12 months. Review company policies and potential for negotiations around your stock options. You may be able to extend the exercise period.

There are also unexpected tax consequences of exercising non-qualified or incentive stock options. Make sure you have liquidity to cover a potential tax bill. Be aware of potential AMT implications. Work with your CPA and financial planner to determine the appropriate strategy.

— Jack Heintzelman, financial planner at Boston Wealth Strategies

3. Don't burn bridges.

Even though being laid off can be painful and hurtful to one’s pride, resist the urge to burn the relationship with your former employer. Keep in touch and stay cordial with your former employer, co-workers, human resources and even customers you might have been close with.

Most of our clients are professionals and have many years of experience in their chosen field. Even though they are caught up in a mass layoff, they are often not easily replaced.

By keeping those relationships open and professional, several of our clients have landed consulting jobs that have often paid more than being an employee of the company with added flexibility and freedom. They would need to keep in mind any non-compete agreements they have signed before going into consulting work and make sure they don’t run into any legal issues.

— Crystal McKeon, chief compliance officer and financial advisor at TSA Wealth Management

4. Grieve, yes, and pivot to a to-do list.

It's been my experience that there is little correlation between what I perceive a client's talent is, and their ability to stay employed, particularly at echelons of the organization that can be Machiavellian.

Best practices that we would recommend include using that time to do some financial planning that clients have been putting off. This can include things as small as beneficiary reviews, insurance reviews and reviewing the estate plan.

Most of our clients like to work hard, so giving them something to do other than to sit at home and grieve that loss is productive. Health insurance, executive benefits and retirement plan changes are all on the docket of our multipoint checklist.

We have a very detailed process on how we handle things like COBRA, tax efficiency and relocation work. But most importantly, we try to be there for the clients to help them grieve, and also help them work on the next venture.

— Sam Davis, managing member at TBH Advisors

5. Secure health insurance and consider retirement distributions.

Health insurance is paramount: If you lose an employer-sponsored plan, explore COBRA continuation or marketplace options to avoid potential gaps in coverage.

Life insurance matters: Review your existing coverage, especially if you have dependents. Consider independent term life insurance for affordable protection if you lost coverage from your previous employer.

For those younger than 59.5, if considering early retirement, 72(t) distributions can help you access retirement savings without the 10% early withdrawal penalty. These are structured withdrawals taken over at least five years or until age 59.5, whichever comes later. Remember, you'll still pay income taxes on the distributions, so you don’t want to take out more than you need. This strategy can give you a base to get you to age 59.5 when you have more flexibility on withdrawals.

— Jonathan Thomas, private wealth advisor with LVW Advisors

6. Consider a career change, or entrepreneurship.

As an advisor supporting clients who have been laid off, it's crucial to navigate the array of options available to them with careful consideration.

Beyond immediate financial concerns like health care and essential living expenses, clients should assess the viability of reskilling or starting a new venture. For instance, if a client possesses substantial savings beyond emergency funds, the client might view the layoff as an opportunity to pursue entrepreneurial endeavors.

However, it's essential to emphasize the importance of evaluating the impact on long-term financial security, particularly regarding retirement savings. By assessing options like unemployment benefits, education for skill enhancement and potential for entrepreneurial ventures, clients can chart a path toward financial stability and personal fulfillment post-layoff.

— Dr. Anthony L. Williams, LPL Advisor and co-founder and financial advisor of Galene Financial

7. Weigh options on insurance and workplace retirement plan.

Among the many uncertainties associated with losing one’s employment is the potential loss of health insurance.

The COBRA Act says that employers with over 20 employees covered by group health insurance in the prior year must provide a displaced employee the option to continue health insurance benefits for a period of time after separation from service. This period is usually 18 months but could be as long as 36 months.

The employee must pay both the employer and employee cost of the insurance plus a small premium, usually 2%. An affected employee should consider whether other insurance coverage is available, whether from a spouse’s benefits or by purchasing a private health insurance policy, and then compare the costs and coverages.

Another area of consideration is what to do with any retirement plan benefits. They will have the option of keeping their money in the plan, rolling the balance into an IRA account or taking the money out, paying the taxes plus a penalty (if they are younger than 59.5).

— Bradley T. Stipp, LPL advisor and founder and wealth manager of Stipp Wealth Management

8. Rethink your taxes and income.

A new client had recently been laid off, and COBRA had started to run out. The first priority was to determine her health insurance options, with open enrollment closing within a couple of weeks.

A health insurance broker helped her look at insurance options within the Covered California Insurance platform and was able to keep her health insurance premiums lower with projected reduced income.

The next priority was to determine how much income she needed and from which sources. We determined that drawing from a rollover IRA, brokerage account and cash savings, in conjunction with running the projected income through our tax planning tool, confirmed that she would be under the Covered California tax limits.

We then looked at her Social Security benefits and created a full retirement plan to create a longer-term income strategy since she was a few years away from taking Social Security. It brought a lot of relief that she could retire, and she knew where and how much income she would receive in the future.

— Nick Strain, senior wealth advisor and wealth advisory committee chair at Halbert Hargrove

9. Audit your financial life.

Although being laid off isn’t fun, it’s a great opportunity to take a pause and to take a deeper look at your finances.

What things are going really well? What areas need improvement? What questions don’t you know the answer to? What questions do you not even know to ask? There are many tangible ways that a person can make smart money moves during the transition from one career opportunity to the next.

First, review credit card or bank statements line by line.

Another is to sketch out a quick ‘balance sheet’ on a napkin, without logging into five apps. If not, perhaps some consolidation is in order.

A third thing to consider is the number of financial accounts that were tied to your former employer. Perhaps it’s time to consider opening up a personal life insurance policy, a self-directed IRA or Roth IRA, or a taxable investment account.

— Terry Parham Jr., owner and financial planner, Innovative Wealth Building

10. Keep the big picture in mind.

Whenever a client’s primary source of family income is eliminated, it is a very tricky situation. Of course you’re first surprised, but then you feel empathy and want to show compassion and assist that family in any way possible.

With the client keenly aware that there is money in motion, you must tread lightly. As a family’s trusted advisor, your role is to reassure this family that everything will be OK. You should present the wealth/financial plan you’ve analyzed over the years and show them that the portfolio has been stress tested. Then you can exhibit different scenarios involving cutting expenses and examining tax savings strategies.

As always, encourage your clients to use your resource with questions about continuing health insurance coverage and unemployment benefits. Your role is simply to be a sounding board for a client truly in need of guidance.

— Jay Beynon, financial advisor with Axió Capital Advisors at Stifel Independent Advisors

11. Stabilize finances for the job search.

The key advice I share with clients facing an unexpected layoff centers on maintaining financial stability while preparing for the next opportunity. It's crucial to understand and maximize any severance and unemployment benefits as a pivotal financial cushion in navigating a job transition.

Secondly, with the potential loss of employer-sponsored health benefits, options such as COBRA or marketplace insurance plans should be considered to ensure continuous coverage without financial strain.

Additionally, take stock of savings, debts and expenses. Prioritizing an emergency fund and reducing non-essential expenses can significantly extend a financial runway, providing more time to secure new employment moving your career forward.

Lastly, a new routine that focuses on restoration and personal development can provide a sense of normalcy and enhance your marketability. This includes updating your network online and setting up meetings with people in the industry and company where you want to ultimately land.

Clients who adopt a proactive and comprehensive approach to managing their finances and personal development during such transitions often emerge stronger and more resilient.

— Andrew J. Tudor, chief wealth coach at Alchemist Wealth

12. Don't cash out that 401(k).

If clients were to inform me that they had just been let go from their job, here are the first three pieces of advice I would give:

1. Don’t cash out your 401(k)! These funds were saved in a tax-sheltered account for retirement. Not only could dipping into these funds trigger a taxable event, but they were earmarked for retirement use.

2. Take a close look at your monthly budget. Fixed expenses, including necessities like mortgage payments, car loans and electricity bills, are things you must have. Discretionary expenses are nice-to-haves but not essential. Consider dinners out, that morning trip to Starbucks and even the premium gym membership.

3. Your new job is searching for a new job. Allocate a specified amount of time daily on your calendar to find your next employment. This includes obvious tasks like job applications and updating your resume, but also consider networking and making a list of characteristics you hope to find in your new job.

— Amanda Sachs, partner, vice president and senior wealth management associate, O’Hare Wealth Management affiliated with Steward Partners.