You Just Got Laid Off—The Financial Checklist
The first 72 hours after a layoff are disorienting. Most people either freeze or make reactive decisions they later regret.
This post is a steady hand. Here’s what to do right now, what can wait, and what not to do.
First, breathe. Then, don’t sign anything yet
The moment you get the news, your brain goes into survival mode. Everything feels urgent. But very little actually needs to happen in the next 24 hours.
Don’t sign the severance agreement immediately. If you’re 40 or older, federal law (OWBPA) requires that you be given at least 21 days to review any agreement that asks you to waive age-discrimination claims—45 days in group layoff situations. Most severance agreements include such waivers, so this protection applies to most people. Even after you sign, you have 7 days to revoke your acceptance. Take the time.
Read the agreement carefully. Look for non-compete clauses (how long, how broad?), non-disparagement clauses (what can you say publicly?), what you’re giving up (usually the right to sue), and what you’re getting (how much, how long, what benefits?).
If anything seems off, consult an employment attorney. Many offer free consultations for severance review.
Yes, you can negotiate severance
Most people don’t know this: severance is negotiable. Employers expect some back-and-forth. They’ve built flexibility into their initial offers.
I worked with a senior manager at a nonprofit who was asked to separate due to performance issues. She came back with reasonable asks: acknowledged the organization’s tight finances, but made the case that she’d done good work before the recent challenges, and as someone well over 40, would need more time to find the next thing. She asked for an additional 90 days of pay. She got it. Not adversarial—just honest and reasonable.
What’s negotiable: the amount (standard is 1-2 weeks per year of service, but you can ask for more), COBRA coverage (ask them to pay your health insurance premiums for a period), termination date (ask to move it to the first of next month so you get another full month of benefits), unvested equity or bonuses (if you’re close to a vesting date, ask if they can extend your official end date), outplacement services (some companies will pay for career coaching or resume help), a letter of recommendation (get it in writing now, while they feel accommodating), and non-compete terms (ask for shorter duration or narrower scope).
How to approach it: stay professional. Make your case clearly. Don’t threaten—but don’t be afraid to ask.
Health insurance: COBRA vs. ACA Marketplace
This is one of the first decisions you’ll need to make.
Someone I knew got laid off about 10 years ago. Group layoff, they thought they were prepared. As soon as COBRA hit, their entire budget went out the window. They ended up having to dip into retirement savings—with penalties—just to keep healthcare. They hadn’t understood how expensive COBRA would be.
COBRA lets you keep your exact same health plan. You pay the full premium (your share plus what your employer was paying) plus a 2% administrative fee. This can be very expensive—often $600–$2,000 per month for family coverage. It makes sense if you’re mid-treatment, have expensive prescriptions with your current doctors, or have already hit your deductible for the year.
If your employer is subsidizing COBRA as part of severance, check whether you must elect immediately to receive that subsidy.
The ACA Marketplace is the alternative. Losing job-based coverage triggers a Special Enrollment Period—you don’t have to wait for open enrollment. Subsidies are based on income, so if your income just dropped significantly, you may qualify for substantial help. You may need to switch doctors or deal with different networks. But it’s often much cheaper than COBRA, especially with subsidies.
Here’s the key insight: you have 60 days to decide on COBRA, and you can elect it retroactively. So you can wait, shop the marketplace, and only elect COBRA if you need it for a gap or a medical event during that window. If you incur medical expenses during that period and then elect COBRA, those expenses will be covered once you pay the back premiums. Retroactive coverage only works if you elect in time and pay all back premiums—so you may need cash flow to front medical bills briefly.
One more thing: if you have an HSA or FSA, check the rules immediately. FSAs can have use-it-or-lose-it deadlines, and the type of coverage you choose can affect your HSA eligibility going forward.
Run the numbers before you decide. Don’t just default to COBRA because it’s familiar.
File for unemployment immediately
No shame in this. You paid into the system. It’s there for exactly this moment.
File as soon as you can—ideally that week. Many states have a one-week “waiting week” before benefits are paid, and processing times vary. The sooner you file, the sooner you get paid.
What to know: benefits are based on your recent earnings. In most states, regular benefits last up to 26 weeks, though some—like Florida and North Carolina as of this writing—offer significantly fewer. You’ll need to certify weekly that you’re looking for work. Benefits are taxable income—you can elect to have taxes withheld. You can generally collect both severance and unemployment, though rules vary by state.
Your 401(k)—what not to do
The single most common mistake: cashing out your 401(k).
I made this mistake myself. Late 20s, working for a contractor that went bankrupt. Another company took over the contract, so technically I wasn’t unemployed—but the transition was treated like a layoff. I didn’t look closely at the 401(k) rollover paperwork. Rushed through it, hit the wrong button on the company website. Before I knew it, the money was in my checking account. Taxed. Penalized. It wasn’t a huge amount, but it set me back years of savings progress. All because I was rushing.
Studies suggest roughly one-third to 40% of workers who leave jobs cash out their retirement savings—rates are even higher for younger workers and those with smaller balances. Do not do this. If you’re under 59½, you’ll pay income tax on the full amount plus a 10% penalty. On a $100,000 balance, you could lose $30,000 or more.
Your options, from best to worst: leave it where it is (if allowed and fees are reasonable), roll it to your new employer’s plan (once you have one), roll it to an IRA (more investment choices, potentially lower fees), or cash it out (almost never the right choice).
If you do roll it over, use a direct rollover (trustee-to-trustee transfer). If they send you a check made out to you, they’re required to withhold 20% for taxes, and you only have 60 days to deposit it into a retirement account or face penalties.
Special note: if you leave your job in or after the year you turn 55, you can withdraw from that employer’s 401(k) without the 10% penalty (but you still pay income tax). This is the “Rule of 55”—it only applies to the plan you’re leaving, not to old 401(k)s or IRAs. If you roll it over to an IRA, you lose this option.
Assets you can tap if needed (last resort)
If things get truly tight, here are options—in rough order from least to most costly.
Roth IRA contributions: you can withdraw your contributions (not earnings) at any time, tax- and penalty-free. The money you put in is already-taxed money, so it’s yours. This is a last resort, but it’s there.
401(k) hardship withdrawal: some plans allow this for specific situations (medical expenses, preventing eviction). You’ll pay taxes and possibly penalties.
401(k) loan: if your plan allows loans after separation, you can borrow against it—but some plans require repayment quickly after separation, and if you don’t pay it back in time, the loan becomes a taxable distribution.
Home equity: if you own a home, you may have access to a HELOC. But be careful about taking on debt secured by your house during a period of uncertainty.
The goal is to avoid tapping retirement savings if at all possible. But if you need to, know the options and their costs.
Emergency budget mode
Get honest about your runway.
Calculate your essential monthly expenses: housing (rent/mortgage), utilities, food (realistic, not aspirational), health insurance, transportation, minimum debt payments, childcare if applicable.
Calculate your resources: severance (how many months does it cover?), savings, unemployment benefits, any other income.
Divide resources by monthly expenses. That’s your runway in months.
If it’s tight, start making adjustments now—not when you’re desperate. But be thoughtful about what you cut. Not everything “discretionary” is worth eliminating. I’ve seen people consider canceling a streaming service that costs $200 per year—money that won’t make or break them—while it’s the one thing that brings them genuine joy during a hard time. Find something else to cut instead. The goal is to extend your runway without making the situation feel worse than it has to.
Bills — what to pay first, what can wait
If you’re stretched thin, the rule is simple: prioritize by consequence.
Pay mortgage or rent first — losing your housing is catastrophic, and most lenders have hardship programs if you call early. Keep health insurance premiums current. Keep the car payment if you need the car to work.
Everything else is negotiable. Credit card companies have hardship programs most people don’t know to ask for. Federal student loans have income-driven repayment and deferment options — apply for them, don’t just stop paying. Medical bills are almost always negotiable and rarely worth paying at full price before you call.
The key: call early. Most creditors would rather work with you than send you to collections. The call feels hard. Make it anyway.
The bottom line
Getting laid off is not a reflection of your worth. Companies make business decisions. Good people get cut all the time.
Right now, your job is triage. Take care of the immediate financial mechanics. Create some breathing room. Don’t make big decisions while you’re in shock.
You now have financial oxygen. Next: the search. We’ll cover that in Part 2.
One note before you get there: the 401(k) decision and the COBRA decision are the two where people most often make expensive mistakes under stress. If you’re uncertain about either one, talk to someone before you act.
You might also like:
“What You Actually Owe” — the debt audit
“How to Think About Debt” - a useful framework for considering debt.