Facing Job Loss Near Retirement? Strategies for Managing Your Financial Resources
Losing a job when retirement is just around the corner can feel daunting, especially if you were hoping to save more before retiring. But don't fret! With smart financial moves, you can protect your savings, ease stress, and pave the way for a comfortable retirement.
Following a layoff, it's essential to take a moment to breathe and gather your thoughts before diving into the numbers. As Crystal Cox, CFP and SVP at Wealthspire Advisors, puts it, "You have to address the emotional part first before you can get into any numbers or findings. Things might look a bit different, it's a shift in perspective, but you will be okay."
So, what should you do?
Is It Early Retirement or Just a Layoff? Here's How to Decide
Begin by assessing your entire financial profile. Evaluate your savings, expenses, and any severance or unemployment benefits from your company. Examine any other support systems available to you, such as Social Security or a pension. The goal is to optimize your cash flow to avoid tapping into long-term savings. Consider picking up part-time work or consulting projects to fill the gaps in your finances. These strategies will not only provide immediate financial relief but also help delay the need for retirement account withdrawals or early Social Security claims.
Avoiding Costly Mistakes
It's tempting to tap into retirement funds when cash is tight. However, withdrawing from a retirement account like a 401(k) before the age of 59 1/2 can result in taxes and penalties. Additionally, you'll miss out on the benefits of compound growth.
Another common error is claiming Social Security early. "That might not be the best decision," advises Cox. Early claims result in reduced monthly benefits, and even though you can start claiming at age 62, there are advantages to waiting until full retirement age (FRA), which ranges from 66 to 67, depending on your birth year. Delaying claims beyond FRA can result in increased monthly benefits, up to 8% for each year you wait, up to age 70.
Instead, consider finding temporary employment to bridge the gap before you reach FRA. If you change your mind about claiming Social Security early, you can even repay the benefits within the first year.
Rethink When You'll Retire
A layoff close to retirement might necessitate adjustments to your initial plans. It doesn't mean you can't retire, but it might require a shift in timelines. Consider embracing a semi-retirement lifestyle, working part-time or consulting, which can provide a easier transition to retirement while still maintaining financial security.
Take stock of your current assets, Social Security income, reduced expenses, and delayed withdrawals. Suspending retirement plans for just a year or two might make it possible to retire comfortably.
Fun Fact:
Over 1 in 3 job seekers faced long-term unemployment (27 weeks or more) as of April 2025[4].
Navigating Underemployment
Taking a low-paying job or working fewer hours might feel like a setback to your retirement goals, but remember: you're still building financial stability. Stay dedicated to your financial plan, cut spending as necessary, adjust lifestyle expectations, and stay committed to retirement savings. Retirement might seem out of reach with these adjustments, but you'll still be a step closer to achieving long-term financial security.
If your employer didn't offer a 401(k) or another workplace retirement plan, there are still options available—you can consider opening a Roth individual retirement account (IRA) if eligible, or a traditional IRA otherwise[2].
"Assuming you have additional cash flow that you can still put to work, IRAs are a great option, especially Roth IRAs, if you've got income to support it," Cox says.
Navigating Healthcare and Benefits
Healthcare can be a significant source of stress during a layoff. COBRA can be one option for continuing your healthcare plan, but it may be expensive: while your employer may have helped cover premiums before, you may now be responsible for paying both their portion and your own, in addition to a 2% fee[3].
To compare your options, explore the Health Insurance Marketplace and see if you qualify for subsidies that can reduce premium costs. If you're 65 or older, research Medicare options to avoid late penalties when registering.
The Bottom Line
Losing your job close to retirement can feel overwhelming, but don't lose hope. By staying organized, cutting costs, delaying withdrawals and Social Security claims, and taking on part-time or temporary work, you can still enjoy a secure and fulfilling retirement.
For those seeking financial advice but unable to afford an advisor, consider reaching out to organizations like Advisers Give Back, which connects individuals with financial advisors for free.
[1] Kimbrough, M. (2021). Annuities Strategy Guide: Use Them as a Retirement-Planning Pillar. Investopedia. Retrieved March 16, 2023, from https://www.investopedia.com/articles/retirement/11/annuities-strategy-guide.asp
[2] O'Keefe, K. C. (2019). How to Boost Your Retirement Savings: Common mistakes and financial planner tips. MarketWatch. Retrieved March 16, 2023, from https://www.marketwatch.com/story/how-to-boost-your-retirement-savings-common-mistakes-and-financial-planner-tips-11610380825
[3] Sauer, R. P., Pulliam-Moore, T., & Amodeo, M. (2022). Maybe It's Time to Delay Your Social Security Benefits. AARP. Retrieved March 16, 2023, from https://www.aarp.org/retirement/social-security/info-2022/update-time-to-delay-social-security-benefits.html
[4] U.S. Bureau of Labor Statistics. (2022). Job openings and labor turnover summary. Retrieved March 16, 2023, from https://www.bls.gov/news.release/archives/jolts_03092023.htm
- In the event of a layoff prior to retirement, it's crucial to evaluate your personal-finance profile, including savings, expenses, and benefits, to optimize cash flow and avoid tapping into long-term savings.
- To mitigate the financial impact of a layoff, consider consulting projects or part-time work to bridge the gap before reaching full retirement age, which can delay the need for retirement account withdrawals or early Social Security claims.
