A career transition can be an exciting next step. It can also arrive without warning. A layoff is unsettling, and it’s difficult to think clearly about financial decisions when you’re also trying to figure out what comes next.
The good news is that you don’t have to solve everything at once. Some decisions have deadlines, while others are better made after you’ve had time to understand your options. Knowing which is which can help you focus on what matters now without rushing decisions that could affect your financial future.
1. Know What Can’t Wait
If you’ve recently lost your job, start by identifying anything with a deadline. Your employer’s policies, benefit plans, and individual circumstances will determine which requirements apply, but these are some of the most important items to check:
- Health insurance: Find out when your employer coverage ends. You generally have at least 60 days to elect COBRA, measured from the later of your coverage ending or receiving your election notice. Losing employer coverage also typically gives you 60 days to enroll in a Marketplace plan, but you generally have only 30 days to request enrollment in a spouse’s employer plan.
- Severance agreements: Check your signing deadline. If you’re 40 or older and your agreement includes a waiver of federal age-discrimination claims, you generally must receive at least 21 days to consider an individual agreement or 45 days in certain group termination programs. Consider having an employment attorney review the terms before signing.
- Flexible Spending Accounts: If you have a health FSA, check when eligible expenses must be incurred and submitted. Unused funds may be forfeited when your coverage ends, subject to your plan’s provisions.
- Stock options: Determine what happens to vested options when you leave. Some plans require you to exercise them within a relatively short period, commonly 90 days, although deadlines vary.
- Unemployment benefits: If you’re eligible, consider applying promptly. Waiting may delay benefits that could help support you during your job search.
Once you’ve identified what requires immediate attention, you can turn to the bigger financial decisions with a clearer picture of your situation.
2. Take Stock of the Resources Available to You
Start by looking at what will support you during your career transition. That may include severance, final pay, unused vacation, unemployment benefits, emergency savings, and other household income. Compare those resources with your essential expenses to understand how long they could reasonably last. You don’t necessarily need to overhaul your entire financial plan right away. The immediate goal is to determine how much flexibility you have while your income is uncertain.
Try not to treat retirement accounts as your first source of cash simply because they’re accessible. Withdrawals from tax-deferred accounts generally create taxable income and reduce what remains invested for retirement. Before age 59½, some withdrawals may also trigger an additional 10% tax unless an exception applies.
3. Look at the Whole Severance Package
If you receive severance, the headline dollar amount is only part of the picture. Review how and when payments will be made and what happens to bonuses, commissions, accrued paid time off, deferred compensation, and equity awards. Some severance provisions may be negotiable, particularly those involving continued benefits or compensation.
Benefits deserve attention too. Employer-provided life and disability insurance may end, although some policies offer conversion or portability options. An HSA remains yours when you leave an employer, while FSAs follow different rules.
A useful question to ask is: Which benefits follow me, which end, and which require action?
4. Don’t Rush Your 401(k) Decision
When you leave an employer, you may have several options for your workplace retirement account. You might leave the money in your former employer’s plan, transfer it to a new employer’s plan when eligible, roll it into an IRA, or take a distribution.
These choices can differ in fees, investment options, creditor protections, and withdrawal rules. One consideration is particularly important if you’re leaving a job later in your career.
The Rule of 55
If you separate from your employer during or after the calendar year in which you turn 55, distributions from that employer’s qualifying retirement plan may avoid the additional 10% tax that generally applies to certain early withdrawals. Ordinary income taxes still apply.
This exception generally doesn’t apply to IRA withdrawals. Rolling your former employer’s retirement account into an IRA could therefore eliminate an option that may be valuable if you need access to those funds before age 59½.
If Your Retirement Plan Holds Company Stock
Another consideration arises if your workplace retirement plan includes stock in your former employer. A strategy known as net unrealized appreciation (NUA) may allow the appreciation on qualifying employer stock distributed from the plan to receive long-term capital-gains tax treatment when the shares are eventually sold, rather than having that appreciation taxed as ordinary income.
NUA has specific requirements, generally including a qualifying lump-sum distribution of the entire applicable plan balance within one tax year. Whether the strategy makes sense depends on the stock’s cost basis, your tax situation, and the amount of your wealth concentrated in one company. Rolling employer shares into an IRA eliminates the opportunity to use NUA treatment for those shares.
These rules illustrate why a seemingly routine rollover deserves careful consideration, especially when you’re approaching retirement.
5. When Job Loss Changes Your Retirement Timeline
Imagine planning to work until 65 or 67 and losing your job at 60. You fully intend to return to work, but finding a comparable position takes longer than expected. Or perhaps the opportunities available come with lower compensation or fewer benefits. At some point, what began as a temporary interruption may start to reshape your retirement plan.
Should you begin withdrawing from retirement accounts? Would claiming Social Security earlier than planned make sense? How will you pay for health insurance until Medicare eligibility? Could you afford to retire sooner than expected, or would working longer in a different role improve your financial outlook? These decisions are connected.
Claiming Social Security early can provide income now but permanently reduce your monthly benefit compared with waiting. Retirement withdrawals can bridge an income gap but leave less invested for later years. At the same time, an unusually low-income year may create tax-planning opportunities, such as Roth conversions or realizing certain investment gains.
Rather than assuming you must retire early—or that you must find another job paying your previous salary—consider what different scenarios might mean for your financial future. For example, working part-time for several years while delaying Social Security could produce a different outcome than retiring immediately and relying entirely on savings. Comparing those possibilities can help you understand the trade-offs before making a decision. An unexpected career interruption may change your path toward retirement. It does not necessarily mean abandoning the plans you have spent years building.
6. Keep Taxes in Mind During a Career Transition
A year involving a job change or job loss rarely looks like a typical income year. Severance, final compensation, unemployment benefits, retirement withdrawals, and income from a new employer can combine in ways your withholding may not fully reflect. The amount withheld from a severance payment, for example, isn’t necessarily the amount of tax you’ll ultimately owe.
Reviewing your overall tax picture before year-end can give you time to consider adjustments rather than discovering unexpected consequences when you file your return.
7. Starting a New Job? Take a Fresh Look at Your Benefits
If your transition leads to a new position, don’t automatically recreate your previous benefit elections. Review when you become eligible for the retirement plan, how the employer match works, and what investment options are available. Compare health plans based on deductibles, out-of-pocket limits, provider networks, and other costs—not just premiums.
If you previously relied on employer-provided life or disability insurance, determine whether your new coverage meets your needs.
We’re Here When You Need Us
A job loss can leave you making important financial decisions at a time when many other things feel uncertain. You may not know when you’ll return to work, what your next position will look like, or whether your retirement timeline will change. But you can still make thoughtful decisions with the information you have today.
At EAG Private Wealth Management, we help people navigate the financial decisions that can come with a career transition, whether it’s a planned job change or an unexpected layoff. If you’d like a second set of eyes on your options—or simply want help understanding what deserves your attention now and what can wait—we’re glad to talk it through.
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The information provided in this article is for educational and informational purposes only and should not be construed as tax, legal, or investment advice. Every individual’s financial situation is unique, and the strategies discussed may not be appropriate for everyone. Before making any financial decisions, consult with qualified tax, legal, or financial professionals regarding your specific circumstances.
While every effort has been made to provide accurate and timely information, no guarantee is made regarding its completeness or accuracy. Opinions expressed are subject to change without notice and should not be considered a recommendation to buy or sell any security or investment product.