Personal Finance

We're in our 40s and were on track to have $5 million- but I just got laid off and am anticipating a 50% pay cut

Joey Frenette

Published: November 23, 2024 3:30 pm

Layoffs are a really tough pill to swallow, especially if one gets blindsided by one that nobody could have seen coming. Despite a rather robust economic climate, mass layoffs are still hitting various parts of the economy. Undoubtedly, more rate cuts from the Federal Reserve may help reduce the occurrence of corporate budget cuts. At the same time, the rise of artificial intelligence (AI) and its impact on the labor market cannot be ignored.

While most positions can’t be automated by the latest and greatest large language model (LLM), it’s becoming tough to gauge the impact on jobs as we progress through the next decade. Reportedly, more than a quarter of code at Google — whose parent company is Alphabet (NASDAQ:GOOG) — is created by generative AI. Even in the early days of generative AI, tech titans like Google have already felt the profound effects.

As investors crave greater efficiency and automation with every big AI update, firms like Google may be inclined to accelerate their automation efforts. Perhaps the most profound statement was when Google CEO Sundar Pichai said the 25% AI-generated code milestone was just the start. Whether this means more layoffs are on the horizon, even with an improving economy, remains the big question.

In any case, the increased uncertainty over employment should have people saving for a rainy day fund. In this piece, we’ll check in on a Reddit poster that just got laid off and expects a 50% pay cut but has the safety net in the form of a massive $3 million nest egg invested in an S&P 500 index fund. Though it’s never challenging to get back on one’s feet after a layoff, the blow can be dampened if one has sufficient savings.

Key Points About This Article

• Losing a job unexpectedly can derail one’s personal finance goals.
• Sizeable savings can help dampen the blow that comes with a layoff.
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The road to $5 million may be slowed. But with so much financial flexibility and freedom, there are options — and silver linings.

Undoubtedly, the poster who took to r/ChubbyFIRE in search of help is hanging onto their ambitious goal of achieving a $5 million net worth. Indeed, it’s a tougher goal to achieve post-layoff. That said, with such a huge amount invested in the S&P 500, I’d argue the goal is still very much achievable, even if the relatively young couple (in their 40s) never ends up making as much as they did before the layoffs hit.

It’s becoming tougher to find a new job these days. Indeed, the days of quiet quitting and the so-called Great Resignation are long gone. With the rise of “ghost jobs” (online job postings that have no intent to actually hire) and a shift of focus towards corporate efficiencies (AI and high interest rates may be to blame), finding new work can be a daunting, dragged-out process that’s harder than it needs to be.

While the poster may find several silver linings to their job loss (think more time with the children and grandparents), the lower level of income marks quite a drastic transition. Indeed, it’s a perfect time for lifestyle changes or big moves (the poster floated the idea of living as an expat).

Though I’m not against making big shifts in an effort to lower everyday expenses, I do think the poster needs to chat things over with the family. With no debt or a home, the laid-off individual has options and a massive amount of financial flexibility.

Arguably, taking time off could make sense before they return to the job hunt and progress towards the goal of saving up $5 million. Perhaps having both members of the family (one member of the couple is a stay-at-home mom) seek work would accelerate the road to such a sizeable nest egg.

Bottom line

In short, the recently laid-off individual is on strong enough financial footing to pursue other opportunities and perhaps even take a break before they continue on their wealth-building journey. With huge investments in the S&P 500, I’d argue the couple will be just fine, whether they choose to step back or move to a new city with a lower cost of living. As always, contact a financial adviser if you’re in a similar situation so you fully understand your options and can make your next move.