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Losing a job is never easy, but being laid off near retirement can feel especially stressful. Suddenly, the plans you’ve carefully laid out for your golden years are thrown into disarray.
See: 10 Reassuring Signs You Won’t Run Out of Money in Retirement
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When you’re younger and still have years to go until retirement, it’s much easier to catch up on savings. You no longer have this luxury as you get closer to retirement. Not only do you have to deal with the immediate loss of income, but you also now have to think about your longer-term savings plan.
As a certified financial planner, I always recommend sitting down and making a plan before taking any steps. Remember, this setback doesn’t have to completely derail your retirement dreams. With the right approach, you can successfully overcome this situation.
Here are six things you should do if you’re about to retire.
1. Take stock of your situation
First, take a close look at your current finances. Calculate your current savings, investments and any other sources of income. Determine how long your savings will last without additional income.
This will give you a better understanding of where you stand and a clearer picture of what you need to do next.
Once you understand your situation, it’s important to create a detailed budget. This will help you track your spending and identify areas where you can make savings. Prioritize essential expenses such as housing, food, health care and utilities. Review your discretionary spending and see where you can make temporary cuts to stretch your budget even further.
2. Review your retirement plan
If you are laid off near retirement, you may need to adjust your retirement plan.
Consider whether you need to adjust your target retirement age or make changes to your investment strategy. If you plan to retire soon, you may need to extend your working years to build your savings. This largely depends on your situation, your goals and the amount of savings you have.
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If you have a retirement plan through your previous employer, take the time to consider your options. Some plans provide lump sum distributions, while others provide monthly payments. Consider consulting a financial advisor to determine which option best fits your retirement goals.
If you plan to rely on Social Security as part of your retirement income, you’ll also want to get an updated estimate of your benefits. Changes in your employment status may affect the amount you are entitled to.
3. Use your emergency fund – but avoid your retirement savings
If you have an emergency fund, now is the time to use it. These funds are intended to help you weather unexpected financial storms, and a layoff certainly qualifies as such.
However, be careful when withdrawing from your emergency fund and use it wisely. Consider using only the essentials to cover your immediate expenses while also setting aside some money for unforeseen emergencies that may arise during your job search.
It might be tempting to avoid tapping into your retirement account to cover your everyday expenses. If possible, it’s best to avoid this.
Generally, withdrawals from traditional retirement accounts such as 401(k)s or traditional IRAs before age 59½ incur a 10% early withdrawal penalty in addition to regular income taxes. This means that a significant portion of your withdrawal will be taxable, reducing the amount you receive.
However, there are some exceptions, e.g. For example, if you are withdrawing money for medical expenses, buying a first home, or paying certain educational expenses. In particular, Roth IRAs offer more flexibility with withdrawals because contributions have already been taxed and can be withdrawn penalty-free, although earnings may still be taxable.
4. Understand your severance package
If you receive severance pay from your employer, check it. Calculate the amount you will receive and consider how it fits into your overall financial plan. Adding your severance payments to your portfolio of assets will give you a clearer picture of your financial situation.
Losing your job often means losing your employer-sponsored health insurance. Find out about your options for further protection, e.g. B. COBRA or individual health insurance plans. If you are over 65, you may be eligible for Medicare.
You should also find out about the unemployment benefits available to you. Each state has different eligibility criteria and benefit amounts. So make sure you know what you are entitled to. Unemployment benefits can provide temporary financial support when looking for a new job.
5. Decide whether you want to go back to work
Take some time to think about whether you want (or need) to continue working or whether you can retire.
If your savings and income can easily support your desired retirement lifestyle, early retirement may be feasible. However, if you are running low on finances or are unsure about the future, it may be wise to look into finding a new job that will provide you with additional income and stability.
Returning to work doesn’t always mean finding a new full-time job. You may want to consider part-time or freelance work that matches your skills and interests. You might also think about starting a small business or monetizing a hobby. By generating additional income, you relieve the financial burden and give yourself more financial flexibility.
6. Take care of yourself
Although this is a difficult time, you need to take care of yourself both physically and emotionally. Losing a job can be stressful and it is important to put your wellbeing first.
Make sure you get enough rest, eat well, exercise regularly, and get support from friends and family. Taking care of your mental and physical health will help you stay focused and motivated in your job search.
Bring away
Remember: Getting laid off near retirement doesn’t mean your retirement dreams are over. By taking stock of your situation and creating a solid plan, you can take back control and prepare for a successful retirement.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here Are 6 Things to Do If You’re Laid Off Near Retirement
Originally posted 2023-11-12 07:58:29.