Navigating a layoff: ‘Make it super hard for your employer to let you go,’ expert says

Carson Group Managing Partner of Wealth Solutions Jamie Hopkins joins Yahoo Finance Live to discuss the state of the labor market, tapping into your 401 (k) plan in the event of a layoff, and ways to navigate through a job loss.

Video Transcript

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BRAD SMITH: Roughly 5.9 million people left their jobs in March according to the latest data from the Bureau of Labor statistics. While a majority of those departures were voluntary quits, about a third were layoffs and discharges-- something that seems to be happening more frequently as companies face challenging economic headwinds.

Joining us now to discuss what employees should do if they find themselves out of a job is Jamie Hopkins, Carson Group managing partner of wealth solutions. the segment is sponsored by FlexShares. Jamie, great to have you here with us. What is the first step that someone should take if they receive a notice that they are part of a broader layoff that's taking place at their company?

JAMIE HOPKINS: Yeah. Thanks, Brad, for having me on. This is such a big, you know, part of life. It's scary, and it's a real thing. Now, while I think overall the job market is still pretty strong right now, the very first thing people need to do is actually deal with the emotional side of it, right? It's going to hit you hard whether you're worried about layoffs or being laid off.

And one of the things I always tell people is there's nothing in this universe that can stop you from letting go and starting over, but you're going to need courage. You're going to have to keep that emotion out of it, and the courage is that power to let go of the familiar and tear down those limiting beliefs to move forward. So that's a huge thing.

The other thing I always tell people is don't go to that negative spot and you let your performance start to drag down if you hear those rumors at work. Make it super hard for your employer to let you go, right? Move forward. Work hard. If you kind of pull that negative spot, you're going to make it easier to be potentially in that layoff group.

Especially in the tech world I also tell people, make sure you're asking about other opportunities at the firm or can you move to a part-time status? That used to be super popular in the tech world, and then we saw more W2 employees. We could be moving back to more of a 1099 world out there in the tech world, right?

Negotiate with your employer. Ask for things. Don't accept anything on the spot. Don't agree to it. Make sure you take that back, reflect on it, and come back in there. And then be proactive about your benefits if you have a spouse or partner. Be-- take notice of where your savings are. Do you have the right emergency fund?

And get ahead of your bills. I hit that one a lot for people because a lot of people do that after they get let go but then you have that month lag where subscriptions and other things start hitting your cash flow. You want to get a month ahead of that. So if you start getting worried at your job, cut back on expenses sooner rather than later.

JULIE HYMAN: Jamie, all really good thoughts here in what could be, as you said, a really emotional time. Let's get to the nitty gritty. Your 401(k)-- do you cash it out? What do you do when you have lost your job?

JAMIE HOPKINS: Julie, it's one of the biggest questions I get when people lose their jobs is, what do I do with my 401(k)? The first thing I tell people is you don't have to make that priority number one. One of the interesting things about your retirement plans is that under ERISA, which was the law that created these, these sit in separate accounts. They're not assets of the company. So even if your company were to go bankrupt and go under and that's why they're letting people go, the 401(k) doesn't go away. So you can leave it there. The law allows you to leave it there in most situations.

Now, if you get a new job, maybe you want to roll that account over to your new employer. You could also take that money and move it to an IRA, which sometimes can be better. It depends on how you structure it. But you could get better investments, lower costs inside of an IRA, so it's something to look at. But you don't need to make that priority number one. Focus on yourself, the next job, networking.

Now, here is one point, especially in the tech world to pay attention to. Are you highly invested inside of your 401(k) in your employer stock? So you work for Microsoft. You have a bunch of Microsoft stock in your 401(k) for instance, right? How much of a percentage is that? Because this is the old Enron story, which is if you were working with a place like Enron, they go out of business, while your 401(k) doesn't go away, if you're really heavily invested in one single stock position in there and that company goes bankrupt, you could lose that portrait.

So I do tell people, take account of that. There's a good rule of thumb that your-- one single stock shouldn't represent more than 10% of any retirement account like a 401(k). So maybe derisk that part, sell a little bit of that off, diversify a little bit, especially if you're getting let go from your employer.

BRAD SMITH: Is there any advice that you have against tapping into retirement funds to bridge the gap between a layoff and losing one job and finding another?

JAMIE HOPKINS: Brad, it's a-- absolutely facet of life that some people might need to tap into retirement accounts if they lose their job. I would stress to try to not do that. So we call that leakage in the retirement plan. It sounds kind of icky and it is, right? It's your money leaking out of these accounts.

The challenge with taking money out of your retirement accounts is the fact that it's hard to get it back in there and that there are really great tax deferred wealth growth opportunities by leaving the money in there. But look, it is still better in most situations to take money out of there than it is to go in kind of snowballing debt. So I will recommend that people spend that money sometimes.

Now, here's one of the challenges. You do have to watch out that if you are really, most cases, under the age of 59 and 1/2, there could be a 10% penalty tax on any withdrawals you take from a tax deferred, say, 401(k) or IRA. There are some other factors that sometimes mitigate that.

But in general, you run into that penalty tax-- that tax rate on top of your ordinary income tax, so you could end up paying a lot of taxes on this money when you lose your job too. So if you have other types of savings, emergency fund, I do suggest people go there first. But it can be one of those lines of last resort, and it is-- it is an asset you have, so don't forget about it before you run into debt.

JULIE HYMAN: And Jamie, finally, sort of grimly I suppose, you could take a cue from your former employer and cut costs for yourself rather than tapping into your savings or maybe in addition to. When you're advising clients, how do you advise them the philosophy when they're looking at their expenses and maybe where they can trim at a time where they need to?

JAMIE HOPKINS: Yes, it's a fantastic question. It really gets to the heart of financial planning and how you approach it. So at Carson, one of the things that we do a lot is we use a way of mental accounting and planning, not with every client but with a lot of clients, called bucketing. And bucketing is just the notion that you take your assets or investments and you put them towards different things.

So we often talks about needs, wants and wishes. And so you can put your expenses into here are my necessities, here are the things I like to have, and here's the things that really are extra. Now, you know, extra might not be food, but it might be the type of food you're eating, right? It might be you still need entertainment but it might be don't need 17 subscription services. So you can kind of scale back even a car. You might need transportation, but do you need that vehicle? Can you-- can you sell that car, buy a different type of vehicle for the time being?

Now, the biggest thing about this, and I mentioned briefly before, is you have to get ahead of this. The biggest issue I see with most people with their expenses is they wait to cut expenses until they get laid off. Then those-- you know, a lot of those bills are still showing up a month later. So the month you get laid off, you now have high bills, the next month you still have high bills, and you don't have the income to offset that.

So if you start getting worried about this, take that accounting of where your finances are today. Rightsize your life. So many people end up in the, you know, we just keep adding costs to our life. We don't take that time review it and cut things out. That's super valuable. It's one of the great things I think that, you know, financial advisors helps clients do out there. But you can do that yourself too, right? You don't need somebody to help you with that. But you just have to be proactive, right? Live life by design, not by default.

JULIE HYMAN: This is really great advice. As we're talking and I'm trying to think of all the subscriptions I have, I don't even know, Jamie. So this is a good reminder to me to go and actually do some accounting of what is even--

JAMIE HOPKINS: Yeah.

JULIE HYMAN: What I'm paying for. Jamie Hopkins--

JAMIE HOPKINS: Write them down, right?

JULIE HYMAN: Yeah, I need to do it. Jamie Hopkins, Carson Group managing partner of wealth solutions. Thank you so much. Really appreciate these tips.