Thinking Smart Financially Can Ease the Stress of Job Loss

Take steps to secure your finances while looking for that new job.

Take steps to secure your finances after losing your job. baranq/Shutterstock

Losing your job can be emotionally grueling. But it doesn’t necessarily have to jeopardize your finances. There are steps you can take to maintain and grow your savings—or at least to minimize the financial fallout—while you look for a new job.

Let’s take a closer look.

Seek Unemployment Benefits

Since you will probably lose your main source of income after losing your job, you'll want to immediately look into unemployment benefits.

The process, as well as eligibility criteria, varies widely depending on your state. You will usually qualify for unemployment benefits if you are unemployed through no fault of your own, for instance because of a lack of available work. States will also have certain work and wage requirements.

Filing for unemployment benefits should be top priority, as you may need to gather paperwork, and it takes time for the government to process the application and make a decision on your claim.

To get the latest information on unemployment benefits, visit the official website of the Department of Labor (DOL) for your state.

You may also want to gather the following.

• Final pay stub
• Previous tax return
• Documentation of any severance pay
• Address, phone number, and dates of employment for your former employer

If you’re eligible for unemployment benefits, it typically takes two to three weeks after you file your claim to get your first benefit check, according to the DOL. But the process could take longer, especially when an unusually large number of people are applying for unemployment, such as may occur during a recession.

Roll Over Your Retirement Savings

After losing your job, you may be able to keep your 401(k) plan with your former employer if its balance is at least $7,000 and the company allows it. Your contributions to the plan are still 100 percent yours and earnings would continue to grow tax-deferred.

But that’s typically where the benefits end. You won’t be able to keep contributing to the account since it’s funded from a company paycheck that you’ll no longer be receiving.

But what if you were receiving employer matching contributions? That has to do with something called “vesting.” This is basically a waiting period you need to undergo before 100 percent of employer matches become yours. Some employers, for example, require you to have worked for the company for at least one year before employer matches are yours. If you don’t meet the company’s vesting period, you won’t be able to take your employer matching contributions with you after you leave your job.

And if your account balance is between $1,000 and $7,000, the company may roll over the balance into an individual retirement account (IRA) with a provider and fund of their choice. If the balance is less than $1,000, your company could “cash out” your account and send you a check for the account’s balance.

If you get a check for the balance,  your old plan must withhold 20 percent of your balance in taxes.

If you want to roll the money over into a new retirement plan, you have 60 days to do so. Otherwise, it will be considered taxable income. And you could face a 10 percent early withdrawal penalty if you’re under the age of 59 1/2.

You can transfer your savings into a variety of different retirement accounts such as a traditional IRA or Roth IRA from some of the top brokers in the country.

A traditional IRA allows you to make tax-deductible contributions. This means your contributions could lower your taxable income and thereby lower your tax liability or increase your refund.

With a Roth IRA, you can’t make tax-deductible contributions. But your qualified withdrawals in retirement will be tax-free as long as you’re at least 59 1/2 years old and you have contributed to the account for at least five years.

In 2025, you can contribute up to $7,000 to a traditional or Roth IRA. And those who are at least 50 years old can make additional catch-up contributions of $1,000.

Unlike an employer-sponsored retirement plan, which typically limits investment options to a set menu, a traditional or Roth IRA generally allows you to invest in nearly the entire securities universe. This includes stocks, bonds, exchange-traded funds (ETFs) and mutual funds.

However, traditional and Roth IRAs aren’t your only options, particularly if you are self-employed.

Retirement Accounts for the Self-Employed

After losing your job, you may turn to the gig economy or even start your own business. In this case, there are a few retirement accounts designed for the self-employed.

SEP IRA: A Simplified Employee Pension Individual Retirement Account (SEP IRA) may be best for those with few or no employees.

Solo 401(k): This is best for business owners or self-employed individuals who have no employees other than their spouse.

SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE IRA), although available to any small business, is designed for employers with no more than 100 employees.

There are major differences across these plans. It may help to work with a qualified financial adviser when deciding which one is right for you.

Whichever route you take, it’s important to note that if you get a check for your previous 401(k) or similar employer-sponsored retirement plan, you'll generally need to roll it over into an IRA or similar account within 60 days. If you fail to do that, it will be considered taxable income. You may also need to pay a 10 percent early withdrawal penalty if you’re under the age of 59 1/2.

Invest

Investing in the stock market is a way to earn passive income while you’re unemployed. You can grow your money even if you’re not “working” for these earnings.

During times of economic uncertainty, you may be concerned about market downturns or bear markets—when stocks drop 20 percent or more from a previous high.

A philosophical take on these is that they’re part of life and tend to be short-lived.

In fact, the average length of a bear market is about 9.6 months, according to an analysis by Hartford Funds. On the other hand, bull markets usually last about 2.6 years on average.

On the positive side, if you invest when stocks are down, you’re essentially buying stocks at a premium. If they recover, you'll enjoy that boost in your shares.

Stocks lose an average of 35 percent during a bear market, according to the Hartford Funds analysis. But they gain 111 percent on average during a bull market. So, if you were to sell all your stocks during a bear market, you'd miss out on all those gains.

On the other hand, you could miss out on the recovery gains if you choose to sell your investments during a market downturn.

If you’re new to investing, you may want to consider mutual funds or exchange-traded funds (ETFs). Both are professionally managed funds that invest in a number of securities like stocks and bonds. This offers instant diversification and takes away the complexities of selecting individual investments.

For the truly hands-off investor, there are also robo-advisers. These digital platforms recommend and manage a diversified portfolio based on answers to questions about your individual finances, goals, time horizon and more.

Open a High-Yield Savings Account

To protect or build your emergency fund, you may want to consider a high-yield savings account. Despite interest rate volatility, some of the top high-yield savings accounts are paying around 4.75 percent interest or annual percentage yield (APY).

This can be especially beneficial if you received a hefty severance paycheck that you can immediately deposit into your savings. High-yield savings accounts tend to pay several times the interest of traditional savings accounts through brick-and-mortar banks. Because online banks and fintech companies don’t have the same overhead as physical banks, they may offer competitive rates.

The national average savings account interest rate is 0.41 percent.

Contrast this to a high-yield savings account. A 4.75 percent APY on $5,000 will pay about $1,305 after five years. Note that the interest on a high yield savings account typically compounds.

Meanwhile, the savings account with a 0.41 percent APY would pay just about $103 after five years.

Still, it’s important to shop around and evaluate high-yield savings accounts. For instance, some require you to deposit a large amount—sometimes around $10,000—to get their highest rates. Some pay their highest rates on any amount you wish to deposit.

You should also consider fees. The top high-yield savings accounts don’t charge maintenance fees and have no minimum balance requirements.

Consider a CD

If you’re trying to save for the short-term, a certificate of deposit (CD) may be right for you. CDs pay a fixed interest rate on your deposit, with the top CDs paying around 5 percent today.

However, a CD requires you to lock up your money for a set period of time—typically three months to five years. However, that varies. You can find CD terms that are as short as one month and as long as 10 years.

There are usually penalties for withdrawing your deposit before its term ends. This is why these may be best for specific savings goals.

The Bottom Line

Losing your job can be an emotional roller coaster as you lose your main source of income, but it may open the door to something better.

Good or bad, it’s stressful. Nonetheless, there are ways to protect your finances throughout this process.

You can seek unemployment assistance through your state’s DOL. And you can roll over your retirement plan funds into a retirement account that you can manage on your own. You can also grow your savings with a high-yield savings account, a CD, or by investing in the stock market.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.