2020 has been anything but ordinary. Many people have lost jobs or had to transition to a new one due to reasons beyond their control. This can be an emotional time, yet one that can also open the door for other opportunities. First things first. You need to prioritize and develop a transition plan that protects your retirement. This starts with cash flow.
The old saying “Cash is King” rings true here. Until your next opportunity comes along you will need to determine your available cash and potential income sources. Your first action should be filing for unemployment. You should qualify if you lost your job due to no fault of your own. Payments are capped and limited in duration but should help bridge the income shortfall. Did you receive a severance? If so you most likely won’t qualify for unemployment. Before signing any agreement, you should consult an advisor for a review. Review your benefits handbook to confirm what departing employees are entitled to and ensure you are paid for unused vacation and pro-rated bonusses. Now would be a perfect time to establish a budget and many free tools are available online. Take a tally of your cash, income sources and expenses. How long do you have before your cash is depleted? Review your expenses and determine where you can make small cuts in order to extend your savings. Thinking of taking Social Security early to meet any shortfall? Proceed with caution as taking benefits early could reduce your lifetime benefit by as much as 55%.
Incurring a major health expense without coverage could be catastrophic to your financial plan. You should have a few available options. Does your employer provide continue coverage? Some will subsidize coverage for a period of time. COBRA group coverage should be available however the cost would be substantially higher. Ideally you could jump on your spouse’s employer coverage. Your job loss would be considered a “qualifying event” which allows you to change coverage outside of the normal enrollment window. This option would usually be the least expensive. The Health Care Exchange offers guaranteed coverage and could be an option if you don’t have spousal or employer coverage. A high deductible policy would mitigate premiums and help protect against a catastrophic health event.
Health Insurance Marketplace Flowchart
You might be faced with several decisions regarding your retirement accounts. Do you have access to a pension? If so you need to decide if you want the lifetime pension or lump sum option available in most plans.
Pension vs. Lump Sum Flowchart
How about your retirement plans such as a 401(k)? Taking distributions too early could result in penalties and taxes and jeopardize your retirement goals. You will want to review your plan options, determine how distributions are taxed, and if rolling the plan to an IRA makes sense. Be sure to contact the benefits department as some plans such as the University of North Carolina offer physician employees retiree health care coverage by keeping funds in their plan. In the past few months, our firm has helped two executives develop transition plans due to a local merger. We helped them make calculated decisions regarding their health insurance coverage, cash flow, and retirement planning. Ultimately, everything worked out, and one of the executives even discovered a higher paying opportunity. If you are in a similar situation stay positive! Develop a transition plan and be open to new opportunities. Your next job could be the best one yet.