Getting laid off is almost never welcome news. When you have bills to pay, a family to support, and goals on the horizon, it can be devastating to find out you’ve suddenly lost your job. But in the wake of the COVID-19 pandemic, that’s a reality that many Americans have had to deal with.
However, this reality can be even more difficult if you’re nearing retirement but aren’t quite there yet, as losing your job to layoffs or furlough can require some drastic life changes. While it’s possible you have enough saved up that you can transition seamlessly into an early retirement, most people in this position will have to go back to work before finally retiring. If you’re one of these people, you have some things to think about and some choices to make.
With that in mind, here are three things you should do if you find yourself suddenly out of work but not quite ready to retire.
Review Your Financial Situation
One of the most important things you need to do is review your finances. This means taking an in-depth look at everything from savings accounts, to investments and retirement accounts. Life without a paycheck can be draining, so you need to make sure that your finances are in good enough shape that you can weather the potentially lengthy storm of unemployment.
Part of this means creating (or adjusting) a budget and sticking to it. When you’re no longer receiving a steady income, it’s essential to plan out everyday expenses to ensure your basic needs are taken care of. This might also mean reducing lifestyle expenses, but it’s important to understand that this time of cutting back is likely only temporary. Being frugal and cutting back now can keep you from needing to dig into any retirement accounts, thus ensuring your future plans are still secure.
Further, with the passage of both the SECURE Act and the CARES Act, you can take advantage of greater government assistance during this unprecedented time. The SECURE Act is the largest retirement-focused legislative reform in decades, and its many provisions were intended to improve access to and attractiveness of retirement plans to help address Americans’ growing concerns with their ability to save for their own retirement. In short, the changes instituted by the SECURE Act can help your retirement timeline remain viable and keep you financially secure in the long run.
Meanwhile, legislation from the CARES Act is all about the short term. Expanded unemployment benefits, a one-time recovery rebate payment and more can help keep you afloat while you either search for a new job or wait out your layoff or furlough period. This government assistance can be added to your budget to ensure you don’t have to dip into retirement savings to pay your bills.
Rethink Your Employment Goals
If you find yourself suddenly unemployed, now might be a good time to look into a new career, field or industry. Finding a similar job to what you had before may prove difficult, especially while COVID-19 maintains a grip on the economy. If you previously worked in a management or senior role, you may be able to find an employer looking for an experienced person to lead through the uncertainty, but many employers looking to fill leadership positions are looking for someone who’s in it for the long haul–not someone looking to work a few years and then retire. And while the aforementioned government assistance can provide a much-needed boost, unemployment runs out, and you may soon find yourself in need of a paycheck. That’s when it might be time to start exploring other employment options.
The “Gig Economy” is growing by the week, and if you suddenly find yourself in need of a source of income, it could be time to look into gig work. This type of work lets you set your own hours, allows you to only take jobs you want to take, and eliminates the stress that often comes with managing people or dealing with other coworkers. It’s also growing within the retired population, so if you find that delivering food or driving for a rideshare service is an easy way to get out of the house and earn a few extra bucks, it might be something you can continue doing once you eventually retire.
Additionally, it’s said that when one door closes, another one opens. Like many Americans, you may have been frustrated or disillusioned by your previous job. If that’s the case, now might be the perfect time to explore something new and exciting. Maybe you enjoy woodworking in your free time and now want to start selling your pieces online. Maybe you’ve had a book idea rattling around your brain but haven’t had time to put pen to paper. This could be a great opportunity for you to take steps to turn your passion into a profession.
Reconsider How You Want to Retire
After spending years, maybe even decades, carefully planning your retirement, it would be a shame to have to change those plans because of an unexpected layoff. Markets rise and fall all the time, so while a wholesale reevaluation of your retirement shouldn’t be necessary, the reality is you might have to make some small concessions.
If you previously relied on 401(k) contributions from every paycheck and/or matching employer contributions to your retirement accounts, getting laid off will certainly affect how much money is going into those accounts every month. Taking a new job that pays less than your previous job is also going to affect the specifics of your retirement plan, as you’re once again not putting away as much as you were. Additionally, if you do have to dip into your retirement savings to power through this period of unemployment, you will likely have to rethink some of your retirement plans to offset these losses.
This could be something as simple as working a year or two longer than you previously imagined before fully retiring. Maybe your plan was to take three trips a year in retirement, but now you can only afford to take two. Maybe the house you were eyeing in Arizona is now a condo. Tax planning, account contributions, and when you start taking Social Security benefits may all be affected by your layoff. And depending on how much you already have saved or how close you are to full retirement age (FRA), these can all force you to reconsider the specifics of how you retire.
Of course, this would be the worst-case scenario. However, it’s important to understand that this is a possibility. Luckily, consulting your financial advisor now can help you find ways to make small changes in the short term that can have lasting effects on your retirement in the long run. You worked hard for your future, and you shouldn’t be forced to change those plans due to unexpected circumstances.
