Protect Yourself Financially Before “That Day”
Those of you that work in the pharmaceutical or other volatile industries are accustomed to M&A activity. If you haven’t been laid off within 5 years of your start date, you are a survivor. If you survive a few layoffs and make it to age 45 intact, you may hear others muttering the word “Teflon” behind your back. After all, it always happens to somebody else…until it doesn’t.
“That day” will eventually come, as it is often announced ahead of time. On “that day,” you walk into the office building with a huge knot in your stomach. You know that “the chosen” will be called into the conference room, where their boss and an HR representative will be sitting with a stack of papers and a box of tissues in front of them. If your name isn’t on the list, you will breathe a sigh of relief and cope with a little survivor’s guilt. Having starred in this movie as “the chosen” and “the survivor” multiple times, I’ve learned to keep in mind one thing: “It’s not personal…it’s strictly business.” Before “that day” arrives, you can minimize the fear and shock by taking a few precautionary steps to protect yourself financially and to maximize your chance for a successful transition.
1. Refinance the mortgage
You just learned that your company is being acquired, but it will take a few months for the deal to close. If you think your name might be on the list and that your layoff will not be brief, consider refinancing. By refinancing and starting over with a 30-year mortgage, you will lower your monthly payment (perhaps substantially) and conserve cash flow. (Refinancing will also help to lower your “burn rate” if you decide to set up your own consulting business or to change careers.) If your layoff is brief or never happens, you can always pay extra each month to keep knocking down that principal. Refinance now, because if you do lose your job and then try to refinance, it will be tough to get approved. Take a look at your roof or windows to see if they will need to be replaced in the next year or two…you may want to borrow a little more than your current balance to replace these expensive items.
2. Get a Home Equity Line of Credit (HELOC)
After you refinance (or in lieu of refinancing), put a HELOC in place just in case. HELOCs can be used to get you through some short term cash flow tightness, but they aren’t a long term answer. HELOCs act just like a credit card, so once your HELOC is in place, you do not pay interest unless you tap the funds in the credit line. Keep in mind that since the 2017 Tax Act, interest on your HELOC is deductible only if you use the proceeds to “buy, build, or substantially improve” your principal residence. If you use the proceeds to pay off your car or student loans, interest on those proceeds will not be deductible as mortgage interest.
3. Utilize all your employee benefits now
After the ax falls, it will be too late to take advantage of those employee benefits. Make sure you schedule your doctor visits, get that Lasik surgery, or schedule that colonoscopy so you can use the money in your Healthcare Flexible Spending Accounts (FSA). If you don’t incur the expenses and use up your FSA, your employer (yes, the one that just whacked you) gets to keep your unused funds. If cash flow is not a concern, accelerate your 401(k) and Health Savings Account (HSA) contributions and max out your contributions for the year. Alternatively, if you have borrowed money from your 401(k), pay off those 401(k) loans prior to the due date of your tax return to avoid having that money treated as a pre-mature distribution subject to a 10% penalty and income taxes. Consider using refinancing or HELOC proceeds if you must to pay off this loan.
4. Most Importantly, Network, Network, Network
The most important thing all professionals should do well before “that day” comes is to build and grow your professional network. While you are working, find an industry-specific organization where you can network with peers. Pharmaceutical professionals can look to the Healthcare Businesswomen’s Association (hbanet.org) or the Bio Pharma Networking Group (www.bpng.org) if they want a more casual networking group. The key is that you have to start networking before you need it.
Most obviously, update your resume to reflect your accomplishments. Your resume should not be limited to listing where you’ve worked and the things that you’ve done. It should show the bottom-line impact of how you have improved your company. In other words, for every bullet on your resume, ask yourself “So what” and re-write it. Keep asking that question (ideally) until you show an achievement with quantifiable financial savings or growth for the company.
Next, update and optimize your professional profile on LinkedIn. There are dozens of books and articles that can help you to optimize your LinkedIn profile so that employers can easily find you. Also, make sure your email address is your personal email. I am amazed at how many of my former colleagues at Wyeth still show their wyeth.com email address on their LinkedIn profile 10 years after the Pfizer acquisition. (Yes, many of us were summarily “Pfired” after that deal closed.)
5. After (or before) “it” happens – Replace your benefits
If your name is called, many of your company benefits that you don’t even think about will go away. Remember that nice cheap life insurance coverage at 10x your salary? Gone! I strongly recommend that you obtain the main portion of your life insurance outside of your employer’s plan since (a) your cost goes up with age and (b) the likelihood that you become ill, less insurable, or uninsurable outside of your group plan increases with age.
Cobra can cover your health insurance needs for a few months, but it typically is not cheap. You may want to investigate policies on the exchange or private policies on www.ehealthinsurance.com to see if you can get a better deal. Many of your professional societies offer group life and/or health policies that may be cheaper than buying a policy on your own.
Like preplanning your own funeral, nobody likes to talk about losing their job. You really don’t know how you will deal with a layoff if and when it occurs as it can be an extremely emotional time. However, you can control the financial impact such an event may have as long as you prepare for it. Don’t be the deer in the headlights. Take defensive action to protect yourself now if you are headed towards a potential layoff.