Older U.S. career professionals are walking a tightrope as they near retirement, with decent odds they’ll wind up unemployed before hanging their workplace lanyard up for good.
According to an Urban Institute study, more than 50% of American workers over age 50 either lost their jobs via layoffs or through involuntary buyouts or force-outs. The study notes there are serious retirement savings implications, among other risk issues, when a longtime worker is forced out of a job at age 50 or 60.
Moves To Make If You’re Laid Off Just Before Age 60
1. Prepare for any potential layoff scenario.
2. File for unemployment.
3. Review your household finances.
4. Check your Social Security status.
5. Review your retirement portfolio.
[See: 15 In-Demand Jobs for Seniors.]
That’s especially the case as baby boomers are retiring with less cash than their parents, according to AARP.
“Getting laid off five years before retirement can be a significant challenge to your goals if you haven’t properly built a cushion into your financial plans,” says Steven Gilbert, founder of Gilbert Wealth LLC.
The issue doesn’t just affect those who are laid off, he says, citing J.P. Morgan’s 2023 Guide to Retirement report that 69% of workers plan to work to age 65, but only 34% actually do, with the most common retirement age being 62.
Unexpectedly not being able to work and save money for retirement during your final working years is significant because those years likely represent your highest earning years.
There’s no perfect way to plan for an unforeseen layoff as you near retirement.
One way to look at the impact of a late-career layoff is by measuring your annual retirement savings between when you were let go versus your planned retirement date.
“Imagine that you’re let go at age 60 versus the planned age of 65 at retirement,” says Joseph Favorito, a financial advisor with Landmark Wealth Management LLC. “While you were working, you were saving $25,000 per year in your 401(k) plan, and your employer matched another $5,000.”
Due to a layoff, that lack of $30,000 per year savings growing at an average return of just 6% would have compounded to about $179,000 in additional retirement savings.
“Using a 4% withdrawal rate, that means your theoretical retirement income at 65 would be reduced by 4% of $179,000, or $7,160 per year,” Favorito says. “As a result, your spending plans may need to be adjusted.”
[READ: How to Pay Less Tax on Retirement Account Withdrawals.]
So what do you do if you’re laid off at 50 or, even worse, laid off at 60? Start with these specific action steps, retirement planning experts say.
Prepare Before a Potential Layoff
It’s better to be safe than sorry, which is exactly why you should factor in a pre-retirement layoff while saving for your golden years.
“To prepare for retirement if you are at risk of a late-career layoff, it’s important to have a diversified retirement portfolio with strategic asset allocation,” says Michael Collins, an adjunct professor at Endicott College in Beverly, Massachusetts, and founder of the investment advisory firm WinCap Financial.
To ensure your retirement savings aren’t destroyed by a potential layoff, “put money away in both tax-deferred and taxable accounts and try to build up as much as you can in emergency funds,” Collins advises.
“Additionally, keep track of your debt, as it will be important to manage if you face a layoff,” he adds.
File for Unemployment Immediately
If you’re laid off within five years of retirement, file for unemployment benefits right away (the U.S. Department of Labor has a state-by-state guide to unemployment filing here.)
Then get active and look for a new job or consider part-time or contract work. Go on LinkedIn and let your followers know you’re open to new work. Don’t be shy about asking friends, family and business connections about suitable job leads.
“Simultaneously, review your retirement portfolio to make sure it is still suitable for your age and risk tolerance,” Collins says.
Review Your Overall Financial Situation
If you are laid off, make use of your emergency fund, which is always a good practice in your working years.
“Hopefully you have six to nine months of cash that can help tide you over as you explore your options,” says Jody D’Agostini, a financial advisory specialist with Equitable Advisors.
Then, review your expenses and prioritize “needs,” which are expenses that you are locked into paying such as shelter costs, health care, food and transportation, and “wants,” which are discretionary costs that can be reduced or eliminated.
“Try to eat at home, eliminate or take less expensive vacations, for example,” D’Agostini says. “You can adapt your lifestyle to the new normal.”
Review Your Social Security Expected Benefits
It’s also advisable to postpone Social Security as long as possible to receive delayed credits that are available from age 62 to 70 of 8% per year.
“That’s particularly the case when the higher-income earner is married. In that scenario, (delay) Social Security as long as possible for maximal income,” D’Agostini adds. “Social Security is one of the best sources of guaranteed income.”
When you leave a job, you can also qualify for up to 18 months of health care through COBRA coverage.
You can also explore the various health care exchanges to get similar coverage at a lower cost due to the decreased income.
“At age 65 or older, you can convert to Medicare,” D’Agostini says. “If you funded an HSA (health savings account), you can use this to help fund any gaps.”
[READ: How Much You Will Get From Social Security.]
Should You Change Your Retirement Planning Strategy?
While everyone’s retirement plan is unique to their personal needs, a shift in your retirement planning direction may be warranted after a near-retirement layoff.
“It really depends on your need for income from your investments,” Favorito says. “If you’re someone that will have enough to sustain your lifestyle between spousal income, pensions, rental income, then perhaps no change is necessary.”
If you’re someone who will need to draw on your assets, make sure you’re drawing cash out at a sustainable rate and have the correct balance between stocks, bonds and cash.
“A typical retiree that is looking to pull an income from their investment accounts in their early to mid-60s should not exceed 4% of their annual balance,” he says. “With that type of a withdrawal rate, a portfolio of about 50/50 or 60/40 stocks to bonds is very typical.”
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Laid Off at Age 60? Here?s How to Handle Retirement Savings originally appeared on usnews.com
