3 Steps to Take If You're Laid Off Before Retirement
The unemployment rate in the U.S. is at a record high. More people are finding themselves out of work, and some may be nearing retirement. If you're laid off before retirement, there are three steps to take.
The coronavirus pandemic has taken a toll on the stock market, the job market and retirement accounts. Unemployment claims in the U.S. have soared to record highs. In fact, the unemployment rate for workers who are 55 and older rose to 13.6% in April. If you’re finding yourself without a paycheck and you were planning to retire in the near future, there are a few steps to take now to get a better idea of whether you can afford to take the leap to your golden years or you should start looking for another job.
Take an Inventory of Your Savings
Take a close look at what you have saved for retirement. Between your employer-sponsored retirement account, Social Security and your personal retirement savings accounts, you need a clear picture of how much money you have set aside. From there, you’ll need a strategy for how much and from where you will withdraw money in retirement. If you have a mix of tax-deferred and tax-free accounts, you will want to strategize your withdrawals.
Look at your accounts and calculate how long your savings will last, based on your current expenses and budget. Keep in mind that your expenses in retirement will be different from your current expenses. If you haven’t already, sit down and create a budget for retirement. Include current bills like your mortgage and car payments, and don’t forget health care, travel and other activities. The average length of retirement is nearly 20 years. Will your retirement savings cover your expenses for 20 years or longer?
If your retirement accounts took a hit in the first quarter of this year and you can’t afford to live off what you have, you might need to delay retirement. It’s important to sit down with a financial adviser when planning and preparing for retirement. A professional will take a closer look at your savings, help you refine your retirement budget and create a comprehensive plan with solutions to fit your needs.
Evaluate Your Social Security Options
If you’re finding yourself out of a job right now and are at least 62 years old, it might make sense to start taking your Social Security benefits before you hit full retirement age. Keep in mind your benefit will be permanently reduced if you claim before full retirement age. Many people think of 65 as full retirement age, however, full retirement age has been pushed back, and you may not hit it until age 66 or 67. For those who turn 62 this year, full retirement age is 66 and 8 months. While I usually recommend waiting to claim Social Security at full retirement age or later, if you need the income, this might be a good option for you.
If you do start taking Social Security and then later find another job where you can keep working for a few years before officially retiring, you will likely have to temporarily suspend benefits — or your monthly check will be reduced. If you are taking Social Security before full retirement age, you are only allowed to make up to $18,240 in 2020. Benefits are reduced by $1 for every $2 you earn over the limit. Social Security can be complicated, and the rules become even more complicated if you start working or suspend your benefits after initially enrolling. Talk with your financial adviser about the best solution for your unique situation.
Put a Plan in Place
We were facing a retirement savings crisis prior to the coronavirus outbreak, and some are worried it will make things worse. Many Americans don't have enough money saved to cover their expenses when they reach retirement. In fact, nearly half of baby boomers have no money saved for retirement. That’s according to a study done prior to the pandemic and stock market drop, which took a toll on retirement accounts. If you intend to retire in the near future and find yourself in an uncertain financial situation, meet with a financial adviser now to put a plan in place. The recent stock market volatility paired with rising unemployment highlights the need for comprehensive financial planning. A comprehensive plan will help you feel more secure as it outlines your retirement goals and the path you need to take to meet them.
There are always variables, uncertainties and potential disruptions along the road to retirement. Losing a job or having a health scare can change the trajectory of retirement, but people will bounce back from this economic crisis. Take this time to analyze your financial situation and assess your options so you can pivot and find a secure path to retirement.
About the Author
Founder & CEO, Drake and Associates
Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.