While being laid off at any age or stage in your career can come as a shock, getting laid off in your 50s, with retirement in sight can completely overhaul your financial plan.
If you have been laid off before retirement, please take the following into consideration:
- Severance/Pro-Rated Bonus/Vacation or sick leave payout – Many of these will be paid to you right away, but you may have the option to spread out the severance payment over separate tax years. This way you can max out the 12% tax bracket for example instead of moving to the 22% and higher brackets with a one-time lump sum severance.
- Stock Options – If you have been laid off, your stock options may become 100% exercisable or vest on your termination date. This will of course help with income, but will also increase your taxable income.
- 401k Loan – 401k loans typically are required to be paid in full upon being laid off. If not repaid, then the loan is treated as a distribution which is taxable
- Health Insurance – Review your health insurance options from your employer. COBRA coverage or even employer retiree medical may be an option until you are eligible for Medicare
- Life Insurance – Depending on your family situation and future income-producing years, you may need to obtain private life insurance if your employer group plan lapse upon termination.
Where will extra income come from?
When the severance runs out or isn’t enough to sustain your lifestyle, where will income come from?
- What resources do you have? If taxable accounts are available then you can sell positions to provide cash. You will be taxed on capital gains/dividends, but depending on your tax bracket you may be able to realize capital gains at 0%.
- HELOC – At this stage in your career, you likely have substantial equity built up in your home that could be an option to cover expenses. This is especially true if all of your financial savings are tied up in tax-deferred vehicles such as 401ks. Also, if you had previously been cash-flowing college costs for your children, either utilizing the home equity or exploring student loan options may be necessary.
- If you are over the age of 55 you can pull from your 401k without penalty upon termination. This will cause taxable income however, so be sure to have a good grasp on your tax planning before utilizing this option.
Gap Year/Retirement Trial Run
Use this time as a practice or mini-retirement to help you determine what you want your future retirement to look like. This way you can determine if you want to permanently retire for good, work part-time, or start a new career all together. Either way this is an opportunity to travel and spend time with loved ones if resources allow.
Job Hunting In Your 50’s
Looking for a new career in your 50s after being laid off certainly has its challenges, but proper planning and preparation can help alleviate some of the burdens. For many individuals, especially those who haven’t interviewed in a long time, brushing up on interviewing skills is a great place to start. Consider recording yourself or asking someone to mock interview you and provide feedback. In addition, consider removing key age indicators on your resume such as your graduation date. Unfortunately, ageism in hiring is a thing, but by de-aging your resume, you can increase your chances of landing that initial interview, which is often the hardest part. Lastly, embrace your age and view it as an asset. You have the experience, wisdom, and track record of success that younger job seekers simply don’t have.
That being said, it’s important to understand the realities of the situation so you can have a better idea of what to expect. Workers ages 55 to 64 have an average unemployment duration of 26.5 weeks, which is the highest of any age bracket. It’s also difficult to make or exceed your previous salary, especially if you’ve spent your years climbing the corporate ladder. Unfortunately, this can come as a shock to many.
New employment options
- Entrepreneurship – Depending on your financial resources, the need for employment at your previous income level may not be necessary. This opens the door for pursuing a business venture that you may have always dreamed of.
- Consulting – The company that just laid you off, may be willing to have you come in as a consultant after a set period of time. Use your familiarity with the company as an asset to provide your expertise just under a different pay structure. These opportunities are often project-based, so may only provide temporary income. If not with your previous company, you may have to go this route with an industry competitor, but income could be higher and the range of project opportunities widens.
- Part-Time Work – Part-time or contract based work can often be a win-win type situation. An employer gets an experienced, reliable worker that they don’t have to fully commit to, and an employee gets the opportunity to showcase their skills and abilities. It also offers job seekers in their 50s the ability to branch out into different industries or job paths.
As you can tell, you may feel in flux during this time as income is coming from a variety of sources while you mull over future plans. This is a great time to sit down and create a financial plan to help get you through this period to the next phase of your career or life.
If you’re interested in learning about financial planning or have questions about your future retirement plans, Financial Symmetry can help. Download our Pre-Retirement Checklist or contact us today to schedule a free, no-obligation phone call with a financial advisor.