The First Two Weeks Decide the Outcome
Most of the financial damage from a layoff doesn’t come from the layoff itself. It comes from what people do in the first two weeks while they’re scared, angry, and getting a dozen conflicting opinions from LinkedIn comments. They sign the severance agreement without reading it. They let unvested RSUs slip away without asking a single question. They forget options exist until the 90-day clock is already half gone. They cash out the 401k because a check for $80,000 feels like real money sitting there.
None of that is stupidity. It’s what happens when a scary, unfamiliar process meets a compressed timeline and an adrenaline spike. The fix isn’t willpower, it’s a checklist you can run on autopilot while the rest of you is somewhere else entirely.
This is that checklist, plus what to set up now so the checklist is short when you actually need it.
What To Set Up While You’re Still Employed
Do these three things this week, layoff or not.
Know your vest dates cold. Not “sometime in Q2,” the actual date on the actual grant. If a layoff lands three weeks before a cliff, that gap is often negotiable (more on that below), but only if you know the date exists and can say it out loud in a conversation with HR.
Keep a copy of your grant documents somewhere that isn’t company email. Your RSU grant agreement, your stock option grant, your vesting schedule. The moment your access gets cut, that inbox is gone, and if there’s a dispute later about numbers, you want your own copy. A folder in your personal cloud storage takes ten minutes to set up.
Size your emergency fund to your actual runway, not a generic number. If your industry has had layoffs recently, you already know your risk is higher than “the median American with a stable job.” Go build the real number instead of guessing.
Do Not Sign Anything on Day One
The severance agreement will show up fast, often the same meeting as the news. It will be full of calm, professional language that makes it feel like paperwork. It is a contract, and you are being asked to give something up for it.
Almost every severance agreement is a release: you get money and continued benefits, and in exchange you agree not to sue the company for anything related to your employment, including discrimination, wage claims, or wrongful termination. That’s the trade. It might be a perfectly fair trade. You can’t know that by skimming it in the parking lot.
Two things matter here:
- The review period. Federal law (the Older Workers Benefit Protection Act) requires at least 21 days to consider a severance agreement if you’re 40 or older, or 45 days if it’s part of a group layoff, plus a 7-day revocation window after signing. Under 40, companies aren’t bound by that specific law, but many still give a review window, check what’s actually printed in your agreement rather than assuming a number.
- Whether it’s worth paying an employment lawyer to look at it. A one-time review from an employment attorney often runs a few hundred dollars and takes a day or two. If your severance is a small amount and the agreement looks standard, that might be overkill. If your severance is a large chunk of pay, if you suspect the layoff wasn’t really about “restructuring,” or if there’s a non-compete or a broad non-disparagement clause buried in there, a few hundred dollars to have someone who does this for a living read it first is cheap insurance.
Don’t let the “sign by Friday” pressure rush you past the window you’re legally entitled to. Companies sometimes pad in urgency that isn’t actually there.
Your Unvested RSUs Are Gone the Moment You’re Terminated
This is the part that hurts and there’s no soft way to say it: unvested RSUs typically evaporate on your termination date. Not your last day of severance pay, your actual termination date. A grant that was three weeks from vesting doesn’t become “almost vested,” it becomes zero.
Here’s where it’s worth a conversation, not a shrug: if your official last day lands just before a vesting date, ask whether the company will move the termination date out. Companies negotiate this more often than people expect, especially in a group layoff where HR has some flexibility on paperwork timing and would rather keep things smooth than fight over a couple weeks. Worst case, they say no and you’re exactly where you started. Best case, a two-week push in your termination date turns into a real vest.
This is also exactly why knowing your vest dates cold, from the section above, actually pays off: you can’t ask this question if you don’t know there’s a vest three weeks out in the first place.
Stock Options: the 90-Day Clock
If part of your comp was stock options rather than RSUs, there’s a second, nastier deadline: the post-termination exercise window. The classic default is 90 days from your last day to exercise any vested options before they expire worthless, though some companies have extended this to a year or longer, so check your actual option grant rather than assuming 90 days.
At a public company, this is usually a straightforward math problem: is the stock price above your strike price, and do you have the cash to exercise plus cover the tax bill on the spread. If yes, exercise. If the stock’s underwater, let them expire, there’s nothing to save.
At a private company, this is the brutal one. You have to pay real cash to exercise illiquid stock in a company you no longer work for, with no public market to sell into and real uncertainty about whether it’s ever worth anything. Consider the tax bill too: exercising can trigger AMT (alternative minimum tax) on the spread between strike price and fair market value, even though you can’t sell a single share to cover it. People have gotten a real tax bill on paper gains from stock that later went to zero. Before you write that check, get a real answer on the company’s last valuation, its cash runway, and whether the 90-day window can be extended (some companies will do this if you ask, some contractually can’t). If the answer is uncertain, walking away from a small position is often the right call, not a failure of nerve.
Health Insurance: COBRA vs. the Marketplace
You have two real paths to keep coverage, and losing your job is a qualifying life event that opens a special enrollment period for either one, so you’re not stuck waiting for open enrollment.
COBRA lets you keep your exact employer plan, same doctors, same network, same everything. The catch is cost: you now pay the full premium yourself, the part your employer used to cover plus your own share, often adding up to several hundred dollars a month more than what came out of your paycheck before.
An ACA marketplace plan is worth pricing before you default to COBRA. Once your income actually drops (severance counts as income, but a partial year at a lower total often does), you may qualify for subsidies that weren’t available at your old salary. It’s common for a marketplace plan to come out cheaper than COBRA once those subsidies are counted, especially if your household income for the year is meaningfully lower than your old salary. Get an actual quote on healthcare.gov or your state’s exchange before assuming COBRA is the default, don’t just guess.
Whichever you pick, don’t let coverage lapse while you decide. You typically have 60 days to elect COBRA retroactively, but check your plan’s specific deadline rather than treating that as fixed nationwide, and it’s still better to make the decision early than to run the clock down while hoping the problem resolves itself.
File for Unemployment Now, Not After Severance Runs Out
File the same week you’re let go, even if you’re still receiving severance pay. Waiting because “I’m still getting paid” is one of the most common and most avoidable mistakes.
Two things vary meaningfully by state and you should check your specific state’s rules rather than assume: whether severance pay delays or reduces your unemployment benefits (some states offset dollar for dollar, some don’t touch it at all), and how long the application and first-payment process takes (it can run several weeks). Filing immediately means that if there’s a wait, it’s already running in the background instead of starting after your severance check stops.
The Old 401k: Leave It, Roll It, Don’t Touch It
Same rules as any job change, covered in full in our 401k rollover guide, but the layoff-specific version: don’t cash it out because a lump sum looks like found money during a scary month.
Cash out an $80,000 pre-tax 401k balance at a 24% marginal tax rate and the 10% early withdrawal penalty (if you’re under 59½), and you’re handing over $19,200 in tax and $8,000 in penalty, for a net of $52,800. You turned $80,000 into $52,800 to solve a cash flow problem that unemployment benefits, severance, and your emergency fund were supposed to handle first. Leave it in the old plan or roll it to an IRA. Don’t touch it.
The Roth Conversion Opportunity (Handle With Care)
A layoff often creates a low-income year, and a low-income year is a real opportunity to convert traditional IRA or 401k money to Roth at a lower tax bracket than you’d normally pay. That part is true and worth exploring with a tax professional or a careful spreadsheet.
What’s not true is that you should rush into a conversion in the same month you lose your job. Severance pay, any accrued PTO payout, and a partial year of your old salary all count as income too, so your “low income year” might not be as low as it feels while you’re panicking about money. Run the actual numbers, ideally once you know your full-year income picture, before converting anything. A conversion done carelessly in November can push you into a higher bracket than the modest, deliberate one you’d do after the dust settles.
Rebuild Your Budget Around a Real Runway Number
Once the initial decisions are made, the ongoing job is turning severance, unemployment, and your emergency fund into one number: how many months you can go without new income before you’re in trouble.
Worked example: a $150,000 salary with 12 weeks of severance is roughly $34,600 before tax. Against $7,000 in monthly non-negotiable expenses, that’s close to 5 months of runway from severance alone, before unemployment benefits or savings are even counted. That’s your actual number. Cut discretionary spending immediately, not because you’re broke, but because every dollar you don’t spend extends the runway, and the runway is what buys you the time to find the right next job instead of the first one that’ll have you.
Severance Withholding Is Probably Wrong
One more thing that surprises people every year: severance is taxable wages, and lump-sum severance is usually withheld as a “supplemental wage” at a flat federal rate (22% for amounts under $1 million in a year), regardless of your actual tax bracket.
If your real marginal rate is higher, say 32%, a $40,000 severance payment withheld at 22% is $8,800 withheld against a $12,800 actual tax bill, a $4,000 shortfall you’ll owe when you file. Check your pay stub for the severance payment, compare the withholding rate to your actual bracket, and set the difference aside instead of getting surprised in April.
The Playbook, Compressed
If you remember nothing else: don’t sign the severance agreement fast, ask about the vest date if you’re close to a cliff, know your options window and don’t let it expire by accident, price both COBRA and the marketplace, file for unemployment this week, don’t cash out the 401k, and don’t rush a Roth conversion before you know your full-year income.
None of this requires being a financial expert under pressure. It requires having read this once, before the call happens, so the checklist is already in your head when it counts.
