Turning a Layoff Into an Opportunity
Whether it’s due to uncertainty around tariffs or productivity gains brought on by advancements in artificial intelligence, a growing number of companies—including hyperscalers such as Microsoft and others—are making tough decisions to trim overhead. Whether the layoff notice comes with a generous severance or merely a handshake and well wishes, the fallout can be both emotionally and financially disorienting.
While tech titans like Microsoft have long been known for offering competitive exit packages—including a few months’ salary, extended COBRA coverage, and stock vesting acceleration—those perks don’t erase the uncertainty that follows. These offers often emerge with little warning, and for employees who hadn’t planned on leaving the company anytime soon, the challenge is not just deciding what to do next but determining how to navigate a financial transition they didn’t ask for.
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If you’re someone who now finds yourself unexpectedly unemployed, it’s worth treating this like any major life transition: with intention, clarity, and a healthy dose of planning. The decisions you make now—what to do with your 401(k), how to handle your vested stock, and whether to cash out restricted stock units (RSUs) or delay selling—will affect your financial trajectory for years.
Your first task is to understand the severance package on the table. These offers can sometimes be customized for individual employees. But in many cases, offers of severance are uniform and extend to an entire organization, a particular department, or to any employee who has fulfilled a minimum term of service.
While larger, publicly traded companies typically allow a few weeks to review and sign severance agreements, federal law grants workers over age 40 up to 45 days to consider one and 7 days to revoke it upon signing. Use that time to run the numbers, talk to your financial advisor and accountant, and look beyond the dollar figure. Many laid-off employees instinctively tighten their budgets, but few go the extra step of analyzing which expenses truly matter and which ones can go.
Consider how long the severance will realistically cover your living expenses, and whether it makes sense to pursue another full-time job. While a layoff notice might initially feel like a burden, it could potentially free up time to pursue something you may have always wanted to do but were previously unable to. Rather than shy away from the decision, lean in, put pen to paper, and decide whether you are in a strong enough financial position to explore freelance work, write a book, or take a sabbatical instead.
Additionally, it is important to understand and prepare for the tax implications. Severance pay, unused vacation, and accelerated vesting on RSUs are all taxable income, and receiving them in a lump sum could push you into a higher tax bracket for the year. That may open the door to smart tax deferral strategies, such as making deductible contributions to a traditional IRA or HSA if you’re eligible. And if you’re charitably inclined and expect to itemize, this is an opportunity to gift appreciated stock to a donor-advised fund.
For a person who has been laid off and chooses not to pursue full-time work for a while, there might be some unexpected tax benefits, such as executing a series of Roth conversions while your income is artificially low. For example, a person whose gross income typically enables them to reach the 37% marginal tax bracket might find themselves in the 12% bracket following a layoff. This presents an opportunity to convert some pre-tax retirement savings to Roth and lock in a significantly lower tax rate on those dollars than they ever could have while working.
You’ll also want to take a close look at your 401(k). While larger companies are certainly generous when it comes to matching contributions and profit sharing, once you’re no longer an employee, you may want to roll those funds into an IRA to gain more control over your savings. Rolling your 401(k) into an IRA can also reveal a wider array of investment options, often with lower fees and greater flexibility than the limited fund lineup typically offered within employer-sponsored plans.
Likewise, you’ll need a strategy for handling vested stock options, RSUs, or any other form of equity compensation. Rather than liquidating your stock completely, a phased selling approach (similar to a 10b5-1 plan) can help mitigate risks while minimizing tax surprises. Similarly, holding on to all of your company shares may expose you to unnecessary risks, particularly if a large portion of your net worth is concentrated in one stock, leaving your financial future closely tied to the fate of a company you no longer work for.
Whether it’s to buy yourself a few months off work, invest in an advanced degree, or simply build a bigger cash cushion, using a portion of the shares you’ve accumulated to achieve something tangible can be one of the most rewarding financial moves you can make. No matter if markets suddenly turn bearish or continue to rise, you’ll have the peace of mind that comes from cashing in some of your equity to fund a meaningful goal—turning paper wealth into real-life security or satisfaction.
A layoff isn’t the same as retirement, but the planning process can look similar. It demands that you take inventory of your financial resources, identify both your short- and long-term goals, and rethink how your time and money are best spent going forward. For workers old enough to consider an early retirement especially, this could be an inflection point—one that invites a new chapter altogether.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
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