Losing Job Shortly Before Retirement
Over the past decade, I've seen a number of people lose their job not long before they had planned to retire. For those who “expected the unexpected” and allowed for such possibilities in their financial and retirement planning, a late-career job loss may require some changes, but it doesn’t spark a crisis. For those who are not prepared, however, plans to retire soon are completely derailed.
The good news is being prepared for such an eventuality is not difficult; you just have to commit to being disciplined with your money. You know you are prepared for the unexpected if:
- You have a good emergency fund,
- You have adequately funded retirement accounts,
- You do not carry non-essential debt, and
- You live within your means, if not below.
Doing the things listed above will help make any related adjustments much easier to handle.
What if you’re almost in good shape, but there are still a couple of things you need to do when you lose your job?
It's obviously much easier to make a solid plan for these events before they happen, but if you find yourself unemployed shortly before your targeted retirement, here's what you can do to get yourself back on track:
- Be willing to take the best available offer. After a layoff, there may not be other positions with equivalent pay and responsibility. This can be hard to accept, but with the limited time you have before retirement, it’s important not to become fixated on what you used to have; you must direct your focus to what you can attain now. Be willing to do something you never considered before or working for less money. Don't think it's not worth working if you can't match your old income. Remember that the longer you wait to take a new job, the more you deplete your savings. Living on less money now is better than having nothing to live on later.
- If you have debt, do a comprehensive review and see what your options for reducing or eliminating it are. If you have collateralized debt, like a mortgage or a car, decide whether keeping the underlying asset is reasonable given your new financial situation. You may need to sell and reduce expenses if the things you have are now beyond your means. Investigate whether you need to pursue debt consolidation or other legal techniques to deal with your new reality.
- Re-evaluate your spending priorities. If you need to adjust your spending, start from scratch. Consider nothing a sacred cow that can’t be touched, including charitable contributions or supporting other family members. You might also need to reclassify certain necessities as luxuries and reduce or eliminate them. For instance, if you’ve always had a large personal care budget, you may need to start looking at things like clothes and trips to the salon as luxuries and reduce spending on those items that are still necessary. Yes, you do have to have your hair cut, but it doesn’t have to cost $200.
- Consider working longer and/or adjust your lifestyle expectations. If you find work that pays less than your former job, but you still want to live the way you’ve always planned in retirement, you might choose to work full-time for a few years longer. Perhaps you planned to retire at 65 and live on $80,000 a year. Now, you might choose to work until age 70. If you’re willing to adjust your lifestyle, you might be able to go ahead and retire at 65, but pull less from your retirement accounts and perhaps work a part-time job for a while. Find the formula that works for you.
If you were almost on track for a great retirement before you lost your job, the setback will be very disappointing, but don’t despair. For most, a few adjustments to the plan and their thinking will allow them to navigate this transition successfully. The key is an open mind a realistic view of the situation.