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Dec 1, 2022
For several months now, top tech companies have been announcing layoffs as the U.S. economy has slowed down. As of December, more than 88,000 workers in the tech sector have been laid off, according to data compiled by Crunchbase. Losing a job can be a stressor, especially when it is unexpected. If this is your experience, below are five actionable steps you can take. A thoughtful plan that incorporates these steps can help put you in a position of control, and in fact, many of these are also relevant when you are the one deciding to make a change.
Review your severance package and file for unemployment benefits
The employer may offer you a severance package. Companies offer these for many reasons. These include a desire to help employees bridge the financial gap, maintain goodwill, and limit potential legal disputes related to the separation. Your severance payment may be contingent on your consent to a separation agreement that may include confidentiality, non-compete, and non-disclosure provisions. It is important for you to review such an agreement carefully and to consider talking with a labor and employment attorney if you have questions.
In certain cases, you might be able to negotiate the terms of the separation agreement to add or increase certain benefits such as payout amounts, subsidized healthcare benefits, or an accelerated vesting schedule on your restricted stocks or stock options.
If you have been laid off or terminated through no fault of your own, you may be eligible for unemployment benefits. In California, the maximum weekly benefit is $450 and for a maximum duration of 26 weeks. While not a significant amount given the living costs in the Bay area, it is free money, and it will help you to preserve your emergency fund and other accumulated cash reserves.
Review your options for health insurance
If you worked for a company with 20 or more employees, you are likely eligible for COBRA benefits, which allow you to stay on your current healthcare plan for at least 18 months. The benefit of COBRA is that you and your family will be able to continue seeing the current healthcare providers–one less change during what is otherwise a time of change. However, COBRA coverage can be quite expensive in that you are now fully responsible for paying the premiums. There are other options you might be eligible for such as Medicare if you are over age 65, or if you are married, you might be able to join your spouse’s medical plan. There is also Covered California – The Health Insurance Market Place. Most of the options outlined here have a 60-day window to enroll, so act quickly and seek advice if needed. Health insurance coverage is complicated, and it might take several weeks to choose the right plan.
Review your stocks options and restricted stocks grants
If you have vested incentive stock options (ISO) or non-qualified stock options (NQSO), you will likely have a limited period of time to exercise your stock options. For ISOs, the period is usually up to 90 days, but it can be longer for NQSOs.
Your options may or may not have value. During difficult periods in the stock market, your company stock may suffer sharp declines. If the exercise (or strike) price is higher than the current stock price, your options are worthless. If the options have value but you will be without a paycheck and so have more pressing needs for your cash on hand, you may want to consider a cashless or net exercise if you have this option. There are many other considerations here, including tax implications, so it may be important to consult with an advisor about your personal situation.
If your restricted stock units or awards (RSU or RSA) have vested, then you own the shares. Now that you are no longer working for the company and not subject to black-out periods, it is important to reconsider how much of the company stock should be retained as part of your portfolio.
For unvested options and RSUs/RSAs, generally, when your employment ends, you will lose these grants. There may be exceptions for certain events or you might be able to negotiate an accelerated vesting schedule as part of your severance package. Again, it is important to read through the specific terms as they pertain to the agreements in place with the employer.
Consider potential tax opportunities
Depending on how long you stay in transition, the year may turn out to be a rare low-income tax year for you relative to all other years during your career. As such, it might be a good time to consider 1) selling some appreciated assets and pay capital gains taxes at a lower rate and/or 2) converting some of your pre-tax IRA or 401(k) funds to a Roth IRA for future tax-free growth if you have sufficient cash available (beyond what you need for expenses) to pay the resulting income taxes on the converted amount.
Envision your next chapter
Once you have your finances in order, it is time to envision your next chapter. This can be a unique opportunity to take a break and redefine your personal and professional goals. Your financial advisor can help you understand the financial implications of deciding to take a sabbatical, joining or creating a startup, or evaluating a new job offer. Please let us know how we, at Summitry, can help you navigate the challenges and opportunities of any job transition you may be facing or considering, now or in the future.
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Schedule a talk with one of our advisors to learn more about Summitry and how we can help you chart a path for your financial future.
Matthew Gordon, CFA
Senior Equity Analyst & Portfolio Manager