Before anything happens
Recessions cannot be timed, so the preparation happens in good years. Know your bare-bones number: housing, utilities, groceries, insurance, minimum debt payments and transportation, and nothing else. If your industry is cyclical or your household runs on one income, lean toward six months or more. Pay down card balances while you are employed, and do not count on borrowing later, because lenders cut credit limits and freeze home equity lines precisely when the economy turns.
Staying employable
Keep a running file at home of your accomplishments, with numbers attached, and update your resume every six months whether or not you are looking. Keep personal copies of your performance reviews and your offer letter, though never the employer's proprietary files. Stay in touch with former colleagues while you need nothing, since most jobs after a layoff come through people.
The first week after a layoff
- File for unemployment insurance with your state at once, since benefits generally run from the filing date and not the layoff date. Amounts and duration vary by state.
- Take the severance agreement home before signing. It is a contract in which you give up the right to sue in exchange for money, and the terms are often negotiable. Workers forty and older must by federal law be given at least twenty-one days to consider it.
- Settle health insurance. You have sixty days to elect COBRA, which continues your employer plan at full cost plus a small fee, and the election is retroactive to the day coverage ended. Losing job coverage also opens a sixty-day special enrollment period on the health insurance marketplace, where a lower income may qualify you for subsidies.
- Leave the 401(k) alone, since cashing it out before fifty-nine and a half brings income tax plus a ten percent penalty. An outstanding plan loan may come due, so ask the administrator for the deadline.
- Switch to the bare-bones budget that day, and call lenders before you miss a payment, because hardship programs go to people who ask.
Your investments in a downturn
If your job is secure and your cash reserve is in place, keep contributing through the fall. Shares bought during slumps have historically been among the most profitable that people own, though nothing guarantees a repeat. Selling after a drop makes a temporary loss permanent.
Note Unemployment benefits are taxable income on your federal return. Choose to have tax withheld when you file the claim, or set some aside yourself.
