Getting laid off close to retirement can be a nerve-wracking experience, especially when you had planned to save more before exiting the workforce. However, making the right financial maneuvers can still help you protect your nest egg, alleviate stress, and work towards your longer-term goals.
Firstly, after being laid off, it's essential to step back and assess what has happened before making any rash financial decisions. Financial advisor Crystal Cox recommends resisting the urge to immediately withdraw funds from your retirement account.
Start by evaluating your entire financial situation: check your savings, identify areas where you can cut back expenses, understand your company's severance package, explore unemployment benefits and seek out any extra sources of support.
Optimising your cash flow should be a priority before delving into long-term savings, and to cover any gaps in your finances you may even need to take on part-time or consulting work. This could delay the withdrawal of retirement funds and claiming Social Security which could save you a significant amount of money in the long run.
Withdrawing from retirement accounts like a 401(k) before the age of 59½ can come with taxes and penalties, and deny you the advantage of compound growth. Similarly, claiming Social Security early may also not be ideal. You can claim Social Security as early as age 62, but doing so reduces your monthly benefit. If possible, waiting till your full retirement age (FRA), usually age 67, gives your monthly benefits a boost. If you delay claiming even further, your rewards increase by 8% annually up to age 70.
Adjusting your retirement timeline is another way to navigate job loss before retirement. Considering semi-retirement or part time work might not be your first choice, but it can provide a less stressful and more secure transition into retirement.
Maintaining commitment to your financial plan is paramount. By trimming spending, adjusting lifestyle expectations and being disciplined with retirement savings, your retirement goal is still achievable, just with a revised route.
If you were previously dependent on contributions to a 401(k), which is a workplace retirement plan, it can be difficult if your next employer does not offer one. In this case, other options like opening a Roth individual retirement account (IRA) or a traditional IRA can be considered.
Finally, managing healthcare needs after a layoff can be stressful. Exploring COBRA, a continuation of your employment healthcare plan, can be an option, though potentially pricey. Comparing against health plans on the Health Insurance Marketplace, which may offer subsidies, or considering Medicare for those above 65 are other options to consider.
In conclusion, a layoff close to retirement is not a dead-end situation. With careful planning and considerate adjustments, you can still aim for a secure and comfortable retirement.