How to Best Cope With Being Laid Off

Evening news shots of Lehman Brothers (LEH) employees carrying boxes of belongings in the streets of Manhattan is just one illustration of how bad things have gotten for the financial-services industry. Add to that Bank of America's (BAC) buyout of a distressed Merrill Lynch (MER) and the uncertainties plaguing Washington Mutual (WM), and the employment situation looks downright dire.

New York, in particular, is poised to feel much of the pain. The financial-services industry accounts for 20% of New York State’s tax revenues and 9% of New York City’s, according to the New York State Comptroller’s office. Lehman Brothers alone employs more than 12,000 people in New York, according to the Office of the Mayor. More layoffs are certain to follow as Bank of America absorbs some of Merrill's staff and lets the rest go, says Ross DeVol, director of regional economics at the Milken Institute, a think tank.

As more investment bankers and brokers lose their jobs, other sectors of New York's economy are bound to get hit as well. "When a metropolitan area has a very high concentration in one or two industries, if there's some cataclysmic event…it has broad economic effects across the entire local economy," says DeVol. (For cities that are weathering the economic downturn and actually adding jobs, view our slideshow).

These once highly-paid employees will stop going out for pricey lunches at area restaurants. And, they'll also stop paying the taxes that help prop up state and local governments, says Beth Ann Bovino, senior economist at Standard & Poor's. The more people who are laid off, the more state and local governments' budgets will come under pressure, she says.

Bovino projects that the unemployment rate will peak at the end of 2009 at about 6.6%. (On Sept. 5, the Bureau of Labor Statistics reported that the national unemployment rate reached five-year high of 6.1% in August.)

If you're laid off -- or worried you're about to be -- here's how to cope:

While not required to do so by law, many employers offer severance packages to laid-off employees. Pay is usually based on the employee's length of service -- while some are entitled to two weeks, other, more seasoned employees receive as much as a year's worth of pay. The good news: Employees with a stellar track record can negotiate a better deal. Also, make sure to have any unused vacation days tacked onto your final paycheck.

For more on negotiating severance and other financial steps laid-off workers should take, read our story.

Even if you're receiving severance, you're still entitled to unemployment benefits. Be sure to file for benefits right away because it usually takes a few weeks for the first check to arrive. The amount you receive is based on your old salary and benefits plateau when your previous salary hits the state's maximum level, says Bruce Nissen, a labor studies professor at Florida International University in Miami. To find out what you're entitled to, check your state's unemployment program at CareerOneStop, a site sponsored by the Labor Department.

Losing your job usually means leaving your health coverage at the office door. If you can't sign onto a spouse's employer-sponsored health plan, consider either extending your previous coverage through COBRA or buying an individual policy. Under COBRA, workers keep the coverage they had through their employers without worrying about getting turned down due to illness or a pre-existing condition. It's a pricey option, though: You'll pay the entire premium plus a 2% administrative fee, which for a family, could top $1,000 a month. If you're young and in good health and just want coverage for medical emergencies, consider private insurance, says Ted Toal, a certified financial planner at Triton Wealth Management. These health plans have lower premiums but carry higher deductibles.

You're out of a job, your savings are diminishing and it’s getting harder to pay off the big bills. Resist the temptation to tap your 401(k) or charge everything on your credit card. Tapping into a retirement account should always be a last resort, says Susan Brown, a certified financial planner at Back Bay Financial Group in Boston. Not only are you depleting your nest egg, but you'll take a significant tax hit. If a laid-off worker is in the 30% tax bracket and withdraws $10,000 from his tax-deferred retirement account, he'll pay $3,000 in income taxes, as well as a federal penalty of 10%. Once everything is paid, he'll be left with just $6,000, says Toal.

As credit-card companies tighten lending standards and lower credit limits for high-risk cardholders, it’s getting that much costlier to make a habit of overcharging. If you're desperate for cash, take money out of a standard savings account or taxable investment account, like a stock portfolio, before turning to your credit cards or 401(k), says Toal.

Finding a new job is tough enough, but trying to find one when there's a slowing job market can feel next to impossible. Luckily, state and local governments offer free job training and search assistance at so-called one-stop career centers. Services vary by center, but can include access to personal computers and job databases, interview preparation and training events. To find a one-stop career center, visit servicelocator.org.

For more places to seek job-hunting help, read our story.