How to Prepare for a Layoff: A Money Checklist Before and After Job Loss

You can't always control whether a layoff happens, but you can control how ready you are for one. A few hours of preparation now can turn a frightening surprise into a hard but manageable stretch.

This checklist walks through what to do before a layoff, what to ask on your last day, how health coverage and unemployment benefits generally work, and how to protect your retirement savings. It is written for anyone who has heard rumors at work, works in a shaky industry, or has already been given notice.

How do you prepare financially for a layoff?

Start by finding your bare-bones monthly number and building cash to cover it. Then gather your records, use the benefits you already pay for, and learn your options for health coverage, unemployment and your retirement plan before you need them. Avoid new debt, file for unemployment quickly, and read any severance agreement before signing.

Step 1: Find your bare-bones number

Your bare-bones number is what you need each month to keep a roof overhead, the lights on and food on the table. It is usually much lower than what you spend now, and knowing it tells you exactly how long your savings can last.

1. List every must-pay bill: rent or mortgage, utilities, groceries, insurance, phone, transportation and minimum debt payments.
2. Add a realistic amount for medicine and other essentials.
3. Leave out everything you could pause within a week, such as streaming services, takeout, gym memberships and travel.
4. Add up the total. That is your bare-bones number.

Step 2: Build your cushion while you still have a paycheck

An emergency fund is cash set aside only for true surprises, and a job loss is the classic example. If a layoff looks possible, every dollar you add now buys time later. Our guide to building your first $10,000 emergency fund walks through a month-by-month plan.

• Keep the money in a separate, federally insured savings account so it doesn't get mixed with everyday spending.
• Redirect any raise, bonus or tax refund straight to savings.
• Pause extra debt payments above the minimum for now. Cash on hand is more flexible than a lower loan balance if your income stops.
• Hold off on big purchases, new car loans or new credit cards until things are clearer.

Step 3: Use the benefits you already pay for

While you are still covered, schedule checkups, dental cleanings and eye exams, and refill prescriptions. If you have a flexible spending account (FSA), check your plan's rules: unused FSA money may be lost or claim deadlines may apply once your job ends. Look at your benefits portal for any perks you haven't used, such as an employee assistance program or tuition benefits.

Step 4: Gather your records

Layoffs can happen fast, and access to work systems can end the same day. Before then, quietly collect what you'll need and are allowed to keep:

• Your last few pay stubs and your most recent W-2.
• Your 401(k) or other retirement plan account details and the plan administrator's contact information.
• Your health plan ID cards and benefits summary.
• Performance reviews, awards and contact details for people who could serve as references.
• Personal files you are permitted to keep, following your company's policies. Don't take confidential company information.

This is also the moment to refresh your résumé and online profiles while you're calm. Our résumé guide can help you update it in an afternoon.

Step 5: Know your rights on notice and severance

Two things surprise many people. First, severance is not guaranteed. The U.S. Department of Labor says there is no requirement in the Fair Labor Standards Act for severance pay; it is a matter of agreement between you and your employer.

Second, some large employers must warn workers in advance. Under the federal WARN Act, employers with 100 or more employees generally must give at least 60 calendar days' written notice before a plant closing or mass layoff. There are exceptions, and some states have their own notice laws.

If you're offered severance in exchange for signing a release of legal claims, read it slowly. According to the Equal Employment Opportunity Commission (EEOC), workers 40 and older get special protections: the agreement must advise you in writing to consult an attorney, give you at least 21 days to consider it (45 days in a group layoff), and give you seven days after signing to change your mind. A waiver also can't stop you from filing a discrimination charge with the EEOC.

Step 6: Questions to ask on your last day

You may get a stack of paperwork all at once. Take a breath, and get answers to these questions, in writing if possible, before you sign anything:

1. Is there severance, and what do I have to sign to get it?
2. When will my final paycheck arrive, and will it include unused vacation? The Department of Labor notes that federal law doesn't require employers to pay a final paycheck immediately, but some states do.
3. On what exact date does my health coverage end?
4. How much of my employer's 401(k) contributions are vested? Money you contributed from your own paychecks is always yours; employer contributions may vest over time.
5. Do I have an outstanding 401(k) loan, and how must it be repaid now that I'm leaving?
6. Who do I contact with benefits questions after today?

Health coverage after a layoff: COBRA and your other options

Losing job-based health insurance is one of the biggest worries after a layoff. You usually have three main paths: COBRA, a spouse's or partner's plan, or a Marketplace plan.

COBRA lets you keep your employer's group health plan for a limited time. Based on Department of Labor guidance, it generally applies if:

• You were laid off, quit, retired or had your hours reduced, and weren't fired for gross misconduct.
• Your employer had 20 or more employees and still offers a health plan.
• You were enrolled in that plan. Your covered spouse and children may qualify too.

The plan must send you a written notice of your COBRA rights. You then have 60 days to elect coverage, counted from the later of the date the notice is sent or the date your coverage ends. After you elect, you get at least 45 days to make your first payment, and later payments come with a grace period of at least 30 days. Coverage after a job loss generally lasts up to 18 months. If your employer has fewer than 20 employees, state law may require some continuation coverage.

Compare COBRA against these options:

• A spouse's or partner's job-based plan. Losing coverage triggers special enrollment, but you generally must request it within 30 days.
• A Health Insurance Marketplace plan at HealthCare.gov. You typically must pick a plan within 60 days before or after losing job-based coverage, and you may qualify for savings based on your income. Some people find they qualify for Medicaid or the Children's Health Insurance Program (CHIP).

If you elect COBRA within the window, coverage starts the day your employer coverage ended, so there's no gap. Just don't let any deadline slip, and check whether your doctors and medications are covered before you choose.

Unemployment insurance: file fast

Unemployment insurance is a joint state and federal program, and each state sets its own rules and benefit amounts. According to the Department of Labor, you generally qualify if you are unemployed through no fault of your own and meet your state's work and wage requirements during a set period called the base period.

• File with the unemployment program in the state where you worked, online, by phone or in person depending on the state.
• File as soon as possible. The Department of Labor says it generally takes two to three weeks after filing to receive your first payment.
• Keep records of your job search. States generally require you to be able to work, available for work and actively looking.

For a deeper look at how benefits are calculated and what to do if your claim is denied, see our guide to unemployment benefits explained.

Protect your retirement savings

When money is tight, cashing out a 401(k) can look tempting. It is often the most expensive option. You can usually leave the money in your old plan, roll it into an IRA or a new employer's plan, or take a cash distribution.

The IRS says the 10% additional tax generally applies to withdrawals before age 59½, though there is an exception for distributions after you separate from your employer in or after the year you turn 55. If you move the money, a direct rollover avoids the 20% withholding. If a check is paid to you instead, you generally have 60 days to roll it over.

Your first 30 days after a layoff

• Week 1: File for unemployment. Note your health coverage end date and your COBRA, spouse-plan and Marketplace deadlines. List every bill and due date.
• Week 2: Switch to your bare-bones budget. Call lenders, landlords and utilities before you miss a payment and ask about hardship options.
• Week 3: Decide what to do with your old retirement plan. Choose a direct rollover or leave it in place rather than cashing out if you can.
• Week 4: Set a weekly job-search routine, track applications for your state's requirements, and reach out to your network.

Try not to lean on credit cards for everyday costs. High-interest debt can follow you long after you land your next job. If you do need to borrow, borrow the least you can and have a payoff plan.

What this means for you

If a layoff is only a rumor, focus on your bare-bones number, savings and records this week. If you've already been given notice, focus on deadlines: your final pay, any severance consideration period, your health coverage election window and your unemployment claim. Either way, you are not starting from zero: the steps above put you back in control.