Laid Off at 60? How to Plan for an Unplanned Retirement
A dinner conversation the other evening took an interesting turn when I asked a friend about his plans for retirement:
“I’m never going to retire.”
“What do you mean you’re never going to retire?”
“I mean, I plan to stay on the job until I’m 75 and maybe even longer, depending on how I feel.”
Looking back, I shouldn’t have been surprised. Like many Americans today, my friend isn’t sure if the money he has saved is going to be enough for retirement. His plan is to keep working so he doesn’t have to find out. I let denial dominate the conversation for a while and then gently asked: “But what if something happens and you have no choice but to stop working?”
Seemed like a logical question to me. Gains in longevity over the last few decades have a lot of us saying that “70 is the new 50.” But even though most of us like to think we have some control over how long we’ll work, life has a way of throwing a curveball sometimes. Whether it comes in the form of an unforeseen health issue or a job layoff or forced separation, that curveball can take the decision of when to retire out of our hands. And this happens more often than you might think.
The Employee Benefit Research Institute’s 2014 Retirement Confidence Survey found that nearly half of American workers retired earlier than they expected, mostly due to health problems, job issues or family responsibilities, such as having to care for a spouse or other family member. Clearly, planning to work into your 70s or beyond isn’t a plan you can count on, which takes me back to the question I asked my friend: What if something happens and you have no choice but to stop working?
Get the Lowdown on Benefits
If you find yourself retiring earlier than you planned, immediately talk with whomever handles your company’s benefits to understand what is available to you. You may find you’re entitled to severance pay or an early retirement package. Depending on the reasons for early retirement, you may also qualify for unemployment compensation or Social Security disability benefits.
One of the most important benefits to focus on is health insurance, especially if you’re not yet 65 and eligible for Medicare. If your firm doesn’t offer retiree health benefits (most don’t these days), ask whether you can continue your current coverage as a bridge until you can enroll in Medicare. If you worked for a large employer, you may be eligible for COBRA; if not, your employer’s insurer may let you continue coverage under an individual plan. If participation under your employer’s plan is not an option, immediately secure health insurance on your own, either privately or through one of the health insurance exchanges available as a result of the Affordable Care Act.
Do a Financial “Triage”
Once you know where you stand benefits-wise, you’ll want to get a handle on where you are financially. Start by looking at your sources of income, including any pension or termination payout you may be entitled to, your 401(k) or other retirement plans, and any personal savings or investments you may have. If you have a spouse or partner, be sure to add his or her earnings and savings to the equation.
Don’t make the mistake of automatically assuming that you should file for early Social Security retirement benefits (starting at age 62) just because you’re eligible. If you’re in good health and longevity runs in your family, it may make better financial sense to draw down your savings first and wait as long as possible to begin taking benefits. You’ll get bigger Social Security checks for each successive year you wait, up to age 70, and those higher payments will continue for the rest of your life. Note that there is no financial benefit to waiting beyond age 70 to claim Social Security.
Zero in on Spending
Make sure you’re comfortable with how much it costs to support your living expenses. Start by identifying your fixed expenses (needs) and your discretionary expenses (wants). Compare them to your anticipated monthly income, and set new spending goals. Keep in mind that you will spend more time in retirement than you may have originally planned. This may require you to adjust your spending so that your money can stretch longer. Once you’ve factored this into your plan, make a budget based on your “new normal”—and stick to it.
Don’t give up on finding full- or part-time employment. There are many opportunities to create income in retirement, and even a little paycheck can help to significantly preserve your retirement savings. If work is out of the question, consider ways to adjust your lifestyle to fit your resources. You may decide to downsize, give up an extra car, cut back on dining out and travel, or put a halt to providing support to children or grandchildren until you have a better handle on your financial situation. For couples, talk together about what is most important for each of you to accomplish in retirement. Having a mutual understanding will help you both prioritize spending.
Unplanned early retirement may not be the way you wanted to end your career, but that doesn’t mean it has to derail your retirement plans—and you don’t have to face it alone. A financial professional can save you some sleepless nights by providing an objective assessment of your situation and a recommended course of action. By reviewing your options together, your financial professional can help you modify your financial plan to meet your short- and long-term needs and goals and find the focus you need to move forward. Remember that he or she has likely coached other clients through similar challenges.