I Got Laid Off at 59 with an $800,000 401(k). What Are My Options?

Photo of a sad professional woman who has been laid off. She is holding a box of her office supplies and plants as she leaves her desk.

(Image credit: Getty Images)

Losing a job can be a devastating financial blow at any age. But when you’re older, it can hit especially hard. Although it’s illegal to discriminate against job candidates due to older age, it’s a hard thing to prove. And unfortunately, many older workers inevitably fall victim to age discrimination. That’s why a layoff at 59 can be downright brutal.

It’s one thing to be let go at 59 with a few million dollars in savings. But if you’re sitting on a 401(k) with an $800,000 balance, that may not be a large enough nest egg to support a fairly early retirement.

That said, a situation like this isn’t hopeless. And with the right strategy, you can make it work for you.

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Pause, breathe ... and think about what you want

A recent survey by the Employee Benefit Research Institute found that about 40% of retirees left the workforce earlier than planned. If you’re laid off at 59, it could easily lead to an unexpectedly early retirement — but it doesn’t have to, says Evan Drury, ChFC and financial advisor at U.S. Financial Services LLC.

Drury has seen clients land in this situation before. And the first question he likes to ask is, "What do you want?"

It's one thing if the client wants to keep working full-time for another five years to maximize earnings and savings, he explains. It's a different matter if they're happy to transition into part-time or freelance work, which may be easier to find.

If you’d rather lock down another full-time job so you can save for a few more years, Drury says that rather than let your age be an impediment, you can use it to your advantage.

"You have a wealth of experience to compete with others in the marketplace," says Drury. If you network aggressively and maximize your skills, you never know what opportunities might present themselves.

On the other hand, you may find that a high-paying side hustle is a good solution for you — one that enables you to cover your expenses and leave your nest egg mostly untouched for a few more years, but perhaps spares you the frustration of trying to land a full-time job.

Drury had a client years ago who was laid off at 65 and couldn’t retire at that time. He encouraged her to find the best job she could, considering her desire for more free time and her financial needs. They landed on a hybrid retirement where she earned a part-time income and took small distributions from her portfolio.

“Retirement means many different things these days. Fully retiring isn't the only approach,” Drury insists.

Make the numbers work

Getting laid off late in life can be a shock, and you may need some time to recover emotionally. But one important thing to do, says Drury, is assess your financial situation so you know what you’re dealing with.

First, he says, review your cash flow based on your current expenses and available income. In the near term, that could be a combination of small portfolio withdrawals and unemployment benefits.

Next, consider trimming expenses and what that might look like. At 59, your home may be paid off, or close to it. If you’re able to downsize, you might walk away with a chunk of money you can invest and use for income. You might also lower your housing costs.

All told, says Drury, you need a sense of what your expenses will look like for the next bunch of years. That’s instrumental in helping you decide whether you can afford to work part-time (or not at all) versus needing a full-time job.

Unfortunately, at 59, you’re too young to get Social Security. And as Drury likes to remind people, while 62 is the earliest age to sign up for it, “your benefit is reduced significantly when compared to your full retirement age.” This means that for a good number of years, you may have to live on a combination of portfolio distributions and whatever income you bring in.

An $800,000 balance in a 401(k) will only yield $32,000 in annual income using the 4% rule. And it may not even be safe to use a 4% withdrawal rate at age 59, so that’s something to consider when deciding whether to pursue full-time versus part-time work.

This assumes, of course, that you can access your 401(k) penalty-free. You generally need to be 59½ for that to happen, though in a situation like this, the rule of 55 may apply, giving you earlier access to that money.

One final piece of the numbers puzzle is healthcare. At 59, you’re too young for Medicare, so you may have to shop for a plan you pay for yourself if you decide to pursue part-time work between now and age 65.

In the meantime, take care of your physical and mental health. Now is the time to adopt healthy aging habits, ideally keeping your healthcare costs to a minimum.

It pays to get help

A situation like this one is unquestionably tricky. If it happens to you, don’t hesitate to get help from different resources. That could mean talking to recruiters and career counselors for guidance and leaning on your social and professional network for support.

Drury also recommends talking through your options with a financial professional. A layoff at 59, he insists, is an opportunity to "make your wants a reality." However, you need a plan, and your finances must support it.

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.