If you’ve been laid off, furloughed, or needed to take unpaid time off to take care of yourself or a family member, it can be easy to let your good financial habits fall to the wayside. After losing a job, when you’re in economic survival mode, who can make the effort to think about investing for the future?
But your loss of income doesn’t have to derail your financial plans. You can prioritize getting back on your feet while also protecting your financial future. Here’s how you can keep your investments humming along even when your career sputters to a temporary halt.
Apply for unemployment
Unemployment benefits can help you make ends meet until your next job comes along, but surprisingly, only about 25% of unemployed workers take advantage of these benefits. This is despite the fact that full-time employers are required to pay into the federal and state unemployment insurance programs via taxes. Researchers believe the reason so few recently unemployed workers don’t apply for their unemployment benefits is because they believe they are not eligible for them.
Your state of residence is strongly correlated with how many unemployed people apply for benefits since the eligibility requirements vary from state to state. But if you have lost your job through no fault of your own, it is worthwhile applying for benefits through your state’s unemployment insurance office. In most states, benefits last for up to 26 weeks, and though the amount of your weekly benefit may be relatively low compared to your previous paycheck, unemployment insurance benefits can help you stretch your savings much further.
Hold the course with your investments
Loss of income does funny things to an investment plan. Suddenly, dollar-cost-averaging and long-term investment horizons can feel too slow, and the siren song of quick-and-dirty investments can sound awfully tempting. Why wait for compounding interest over time when you could invest in your Uncle Neil’s Beanie Baby NFT and apparently retire in six months as a multimillionaire?
While you may be fully aware of the folly of investing in anything Uncle Neil proposes, don’t assume you’re in the right emotional space to make the best decisions about your investments. Long-term investing only works if you’re in it for the long haul. Shifting your asset allocation to something that seems like it could solve your short-term problems is a sure way to cause yourself bigger problems in the long (or short) run.
Generally, it’s best to let your investments be when you’ve had a major financial crisis. In the immediate aftermath of a job loss, you’re more likely to make reactive decisions based on your current emotional state. That’s imposing permanent consequences on a temporary problem.
Once you’ve had a little time to get used to your new circumstances, then it might make sense to put your head together with your financial advisor’s to determine if your investment plan will still meet your needs and goals—including how to handle ongoing contributions.
Depending on your situation, you may need to put a pause on contributions while you’re out of work. (This is pretty easy if you’ve been contributing via automatic deductions from your paychecks; otherwise, you’ll need to simply manually pause your contributions.) But if you can afford to keep investing, even as little as $5 per month, it’s worth maintaining the investing habit during your unemployment. Every dollar you set aside now is one that will grow for your future.
Get healthcare coverage ASAP
Unfortunately, leaving a job in America usually means losing your access to health insurance coverage. And since medical care is an expensive wildcard in every budget, your first order of business here is to figure out your healthcare coverage.
There are two ways to get healthcare coverage after leaving a job: continue your workplace-sponsored health insurance via COBRA or purchase insurance on the ACA marketplace.
COBRA coverage allows unemployed workers to temporarily continue their group health insurance after a job loss; COBRA also covers a reduction in full-time hours and other major life changes, such as divorce or a spouse’s death. However, you may be required to pay the entire premium out of pocket, up to 102% of the cost, to the plan in order to keep your coverage under COBRA. Since your employer was likely paying a portion of the health insurance premium to keep costs lower for its employees, this option can be very expensive. Also, COBRA coverage is generally only available for up to 18 months after your job loss.
Alternatively, losing workplace-sponsored health insurance qualifies you to sign up for an ACA marketplace healthcare plan—without having to wait for the general enrollment period of November 1 to January 15. ACA plans offer savings based on your income, so this can be a much more affordable option for healthcare coverage. Just remember that the income from your previous job is included in this year’s estimated income, which is how the ACA determines if you qualify for savings on marketplace healthcare plans. If the job you lost was high income, you may not qualify for ACA savings this year.
Withdraw strategically
In a perfect world, your emergency fund would be sufficient to cover your living expenses during any period of unemployment or underemployment. Since that’s also the fantasy world where you floss daily and never finish a pint of Ben & Jerry’s by yourself, it’s quite all right if that doesn’t describe your situation.
So where do you get the money you need while weathering your career setback? After you have exhausted your emergency fund and your unemployment insurance benefits will soon be expiring, you might consider these two other sources of cash:
Home equity line of credit
About 48 million American homeowners have built up equity in their homes as of 2024, with an average of $206,000 of tappable equity per borrower. This kind of money could be a lifeline after a loss of income, and there is a simple way to tap it: a home equity line of credit (HELOC).
This kind of variable-rate revolving credit allows you to borrow money when you need it, pay it back, and borrow it again during the draw period, which is typically 10 years. While most HELOCs are used for large home renovations or other major expenses, the money from a HELOC can be used for any expense—including living expenses during unemployment.
You only pay interest on the money you borrow from the HELOC, so having a line of credit you don’t use won’t cost you anything. This is why it can be a smart move to open a HELOC while you are still employed to keep in reserve in case you need it.
If you do borrow from your HELOC, don’t take more than you need. You will have to repay this money, with interest, and defaulting on a HELOC could endanger your home.
Roth IRA
Standard advice puts your retirement accounts entirely off limits, but one of the major benefits of a Roth IRA is that any and all contributions can be withdrawn tax- and penalty-free whenever you need it.
Roth IRAs require you to have held the account for at least five years and reached the age of 59½ before withdrawing the earnings without triggering taxes or penalties. But any money you have put into the fund is fair game at any time. Since you have already paid taxes on your contributions, Uncle Sam will let you access that money anytime.
The only downside to taking money out of your Roth IRA is the loss of compounding interest. Losing that growth potential is nothing to sneeze at, which is why taking withdrawals from this account should not be your first resort. But accessing the money in your Roth IRA will be less expensive than tapping into any other retirement account.
Don’t let the setback grind you down
No one’s career follows a straight upward trajectory—which, okay, is cold comfort when you’re in the middle of a career setback. The key to surviving a loss of income is taking advantage of unemployment insurance, sticking to your investment plan even if you’re feeling financially stressed, making sure your medical expenses will be covered no matter how long your unemployment lasts, and being strategic about how you access cash.
If you embrace these strategies, your career setback doesn’t have to trigger a long-term financial setback.