It’s happening to an increasing number of people of a certain age. It happens late in the prime of working life and just when you think you’ve got a solid nest egg for retirement, you lose your job.
Losing a job late in life is not a rare experience; older workers find more challenges than their younger counterparts in trying to get back to the workforce, if ever, and certainly not at their
previous level.
“I have seen an alarming number of my friends’ parents being laid off,” says Kelley Long, a spokeswoman for the National CPA Financial Literacy Commission, certified financial planner and director of communications and marketing for Chicago-based accounting firm Shepard Schwartz & Harris.
“For younger people who are laid off, it’s not as traumatic. They have more time to save. When you are in your 50s, your skills are more specialized. You are cruising on the retirement path. Then you have to walk into a job interview and you feel that your gray hair is going to be held against you,” says Long.
The good news? Losing a job after you turn 50 doesn’t have to ruin your retirement plans. It might force you to alter them, but you do have options. The key is to treat raiding your savings accounts as an absolute last resort.
Accepting the challenge. The unemployment rate for individuals 55 and older is actually fairly low. AARP reports that this rate stood at 4.5% in January, down from 5.1% in% and 5.9% in January 2013. Still, this meant that about 1.5 million people 55 and older were unemployed in January.
The average length of unemployment for people in this age range is 44.1 weeks, according to AARP. For those older than 50 and out of work, protecting retirement savings may seem like an impossible goal. But it helps to start with a plan.
First, determine exactly how much money you are spending each month. You’ll need a detailed budget of household expenses and revenues. You’ll need to know what’s going out versus what’s coming in.
Once you have a budget, it’s time to cut. This means ending memberships in community organizations, dropping cable TV, reading newspapers for free online and ending those underutilized gym memberships, in other words, any discretionary spending that you don’t really need. The reason? It can keep you from dipping into your retirement savings plans.
Assessing your situation. Some people are in better financial shape after a job loss than others. Many, for instance, may have saved a significant amount of money for retirement already. These savers might even have enough to fund a solid retirement as long as they don’t dip into their 401(k) plans or IRAs too soon. Others might have set up an emergency fund. If so, they might have six months’ to a year’s worth of income to cover their bills and expenses while they search for a new job.
What is your plan in the event of job loss? Part of any plan should be to have an emergency fund at the ready, one that holds at least six months’ and preferably a full year’s worth of your current salary. In a perfect situation, you want to avoid the withdrawal of retirement funds, and only as a last resort, especially since, depending on age, you will pay income tax and a penalty on the withdrawal of the deferred wages.
Considering part-time work. A part-time job that allows you to survive without raiding your retirement savings is by far the best financial move, especially if you can maintain enough cash flow to protect your retirement savings. If you planned to travel the globe after leaving the workforce, a part-time job in the meantime often makes the difference.
On a different front, your children might now qualify for additional financial assistance because of your drop in income. Or, if you have life-insurance policies with cash value, it might be time to cash those out to provide a boost in income until you find a new higher-paying job.
You might also consider rolling your 401(k) plan into a traditional or Roth IRA. These vehicles often have lower service costs than 401(k) plans and might offer you a greater number of investment choices.
You can either look at this as a tragedy or an opportunity. Having the right attitude is key, precisely because it opens a new beginning.
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