Working in the pharma industry can be financially rewarding, but it also comes with some risk. Companies can scale up or down quickly; startups may lose funding or fail to gain FDA approval; patent cliffs, restructuring, mergers, and acquisitions can shake up even the most established companies, and there are few guarantees.
If you are facing a layoff for any reason, it’s important to know how to preserve your finances and preserve your benefits as you prepare for your next career move.
Keep in mind that it’s not just your paycheck and bonuses you’re losing. Your healthcare coverage, equity compensation, and retirement fund contributions will come to an end, and your tax situation may be impacted.
So, while you’re likely focused on what comes next career-wise, taking some time to review your financial plan might help you avoid unwelcome surprises.
Preserving Your Financial Plan: What to Consider
Here are some of the things pharma employees should look at when facing a layoff.
Your severance package
Typically, a severance package is offered in a lump-sum payment. Before signing off on anything, it’s critical to understand exactly what you’ll be getting and whether there are deadlines involved.
In some cases, you may need to make some decisions about your equity and healthcare on a very tight timeline. If you hold a senior role, you might also have some room to negotiate, so keep that in mind.
Here’s what you should be looking at:
- Payout based on years of service
- Continuing healthcare benefits or COBRA
- Unused vacation/time off pay
- Stock options or RSUs
- Retirement plan details
- NDAs or non-compete agreements
Don’t sign anything until you understand exactly what you’re getting. If you are concerned about any implications, speaking to a financial advisor is never a bad idea.
Review your cash flow.
Do you know how long your savings or emergency fund can sustain you without income? If you know where you stand, you can make adjustments.
Do this immediately:
- Calculate your essential monthly expenses
- Assess your emergency fund and any other income
- Factor in your severance pay
- Explore unemployment benefits, if available to you
Knowing the above will give you a baseline from which to make adjustments, if needed. What seemed comfortable with a steady salary might not make sense without it, especially if your job search takes longer than anticipated. Clarity alleviates panic!
Understand your healthcare and options
You may have family coverage through your spouse’s employer or continuing coverage through COBRA, but you also might need to consider short-term coverage to cover any gaps.
Keep in mind that with COBRA, you’ll have the same coverage but will be paying the entire premium, so it’s always wise to consider what kind of coverage you really need and shop around a bit.
Review your retirement accounts
You’ve likely benefitted from employer benefit matching, profit sharing, and pension benefits. If you have a 401(k), you’ll have some choices to make, and you might even be able to leave it with your former employer.
Other options include rolling it into a new employer’s plan, which would keep it growing and avoid having to pay immediate taxes. Withdrawing the money outright is the least financially favorable option due to taxes and penalties.
Analyze your equity compensation
Whether you have RSUs, ISOs, NSOs, or ESPP shares, each has different rules for vesting, exercise periods, and taxation. You’ll need to make quick decisions on these, so knowing the variables and your options can help.
Stock options, for example, may expire within just a couple of months of termination, and your decision may have a significant impact on your tax situation.
Understand how your tax picture will change
A layoff is an excellent opportunity to do some tax planning.
In the year your job ends, you will have less taxable income; however, you also might have severance pay, bonus payouts, and taxes on equity compensation. Unemployment benefits and retirement account rollovers should also be factored in.
Roth IRA conversions, charitable contributions, and capital gains harvesting can be advantageous, depending on your income and future earning potential. Some of the opportunities you can tap into here might not be available to you in high-earning years.
Review your long-term financial goals
Your financial picture changes as the years pass; so will your long- and short-term goals. Work with your financial advisor to determine whether your previous timeline still makes sense, and whether a new career focus would fit better with your long-range objectives.
For example, have you considered consulting work as an alternative? Do startups excite you? Is a relocation in the cards? Will upskilling or gaining new certifications advance your potential?
Your financial plan should evolve based on your changing priorities.
Don’t make emotional decisions
Losing a job can be stressful, especially without any obvious way forward. Understandably, this can lead to panicked decisions, some of which can end up being huge mistakes.
A few examples are:
- Cashing out your retirement accounts
- Selling your investments at inopportune times
- Exercising your stock options before you understand the tax implications
- Accepting the first job offer that comes along
- Eliminating all discretionary spending
Clear heads must prevail if you want to come out ahead. Think before you leap, get the information you need to make the best possible decisions, and always keep the long-term picture in mind.
Facing a Layoff? Work With a Pharma Financial Advisor.
Pharma employees often have vastly different economic situations compared to other industries.
From equity compensation to variable bonuses, pensions, and all kinds of deferred compensation, some nuances might well be overlooked by general financial planning.
The decisions you make now can impact your finances for years to come. Working with an advisor who understands the challenges of your situation may clarify your situation and help you leverage timing and tax strategies you may not have considered on your own.
As an example what will you do with that company stock you've been holding now that you no longer work there?
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.