What is a Layoff Fund?

A layoff fund is exactly what it sounds like; it’s an emergency fund for the purpose of maintaining financial solvency for those that are experiencing a layoff and/or work transition. It’s a financial backup plan should you ever get fired or lose your job due to downsizing.

Older Workers

Having a layoff fund for those over 50 has become more important in recent years. Despite what the stock market and other sometimes misleading consumer sentiment indicators might be telling you, there are signs that layoffs are increasing within the workforce and changes are happening fast (Fiver just recently laid off 30% of its entire workforce). Unfortunately, this trend also appears to be more pronounced for older workers. Advances in technology and ageism can make older workers the first to go when a company is planning layoffs. Older workers are also more heavily targeted since they tend to have higher salaries and more tenure and are more “cost effective” when management looks to downsize. It’s also usually more difficult for older workers to effectively transition and acquire new skills later in life. As we age, we sometimes become less adaptable and can be a lot less inclined into starting a new career path. This is why if you’re over the age of 50 it’s essential that you maintain a layoff fund for your own financial stability.

Layoffs on the Rise in Older Workers

Layoffs have been on the rise recently in some sectors, mainly the tech sector and other professional service related industries. According to the National Bureau of Economic Research (Economists Gordon Dahl and Matthew Knepper), age-related firing rose by approximately 3.3% for each percentage point increase in the unemployment rate. So, there is statistically significant data that shows that layoffs more negatively affect people above the age of 50.

How Should a Layoff Fund be Different Than a Retirement Fund?

A “layoff fund” should be different than a retirement fund in a few different ways. Firstly, a layoff fund is a much more short-term savings vehicle that is meant to help you retain financially stability and provide a financial cushion in the short term (not in the long term like a retirement account). Therefore, a layoff fund should be a lot more accessible than a retirement account and should not have a waiting period for withdrawal. Consumers sometimes have to make a tradeoff between earning a yield and having quick access to available savings, for a layoff fund, we really want access to cash and to try and forego yield whenever possible.

How to Set Aside Money for a Layoff Fund

First you need to set a goal of how much money you want to save; a good way to break this down is by time! Ideally, you should try to set aside savings based on living expenses, a good goal can be anywhere from 3 – 6 months of living expenses (although this is totally up to you at the end of the day). You can then opt to automate savings or just do it the old-fashioned way. Once you’ve saved your money, you’ll likely want to open a high yield savings account since they offer quite a bit of flexibility and also generate yield.

After it’s all said and done if you use this method you will be prepared for what comes regardless of what happens.