The rapid spread of COVID-19 in the U.S. led to a dizzying halt of our economy in March. Since then, more than 20 million Americans have been laid off or furloughed. Additionally, some companies are offering packages for employees to leave voluntarily.
If you find yourself in one of these situations, it can be very intimidating trying to figure out your next moves. But it’s important that you do plan your way ahead, so that when things calm down, you can get back on track quicker.
Until then, here are some steps you can take to weather this phase:
Accepting a Severance Package for Early Retirement
As companies struggle to stay financially afloat, some are offering severance packages for their employees. Whether or not you should accept a severance package is going to depend largely on your financial health, but there are a few key factors to consider:
- Stock Options – Once you leave your job, your options or stock units might vest automatically. This could incur taxes or throw your portfolio allocations off balance. I recommend reviewing your plan description.
- What does the package include? Severance packages typically include benefits and compensation like unpaid bonuses, sick time and stock options. It’s very important to review exactly what is being offered to make sure nothing is left out.
- Should you involve a lawyer? A lawyer can help you ensure you’re making the best decision at what is probably an emotional time for you. They can also help you determine if you need to negotiate anything in the severance package.
- How much time do you have to make a decision? Don’t rush. Take the time you need to feel good about whatever you decide.
- Cash Flow – Now that you are retired, do you have a grasp on how much money you need? Where will you withdraw money from: a 401(k), Roth, taxable, or deferred compensation account? Get a strategy together for how you will fund your retirement.
Bridge the Health Care Gap Between Retirement and Medicare Age
If you have a well-funded retirement account and are getting laid off, you could consider an early retirement.
One concern with retiring early is the waiting time until you hit the age to collect Medicare, which is age 65 for most people.
If this is the case for you, one option is the Consolidated Omnibus Budget Reconciliation Act, also known as COBRA. You may also be able to pick up COBRA if you’ve been laid off.
This coverage lasts up to 18 months and allows you to stay on your employer’s health insurance plan. Keep in mind that the premiums are likely going to be higher (usually 102% of the premium,) since your employer won’t be chipping in to cover the cost.
A deferred compensation plan can also help bridge the gap until Medicare. You can read my post about deferred comp plans here.
Allocate Your Investments
As a general rule, investments work best when they aren’t messed with too much. Check in just enough to make sure your portfolio is balanced the way you want it to be. If you get too involved, you risk making knee-jerk reactions that could hurt you in the long run.
In a down economy, there is potential for bargain buys and growth opportunities. So if you’re not too close to retirement, there is time to purchase some stocks at a lower cost than usual. I wrote more about investing during a recession here.
If you’re struggling with managing your portfolio or concerned about the economic impact to your investments, I can help. Contact me here to set up a call.