A sudden job loss when you are nearing retirement can have a deep emotional impact on individuals and their families. Almost everything changes when one loses a job, but not necessarily for the worst.
Becoming unemployed may put you in an unfamiliar situation, but it will only be confusing and overwhelming if you haven’t taken preventative steps to cope with an unanticipated dismissal. There are a few simple assessments you can do to help you stay afloat financially in the event of a job loss near retirement.
1. Budget for Today and the Future
Unless you have already prepared an emergency fund and are up-to-date with your financial state of affairs, daily or monthly budgeting is more essential than ever. By projecting potential revenue streams and expense dams, you’ll be able to keep your money tight and focused on essential spending.
According to Kiplinger, sitting down to make a basic budget — a plan to spend your money for a specified period of time — doesn’t need to be a chore. You just have to be thorough and realistic so you know where your money is going and where you can scrimp. With less income coming in, cuts will most likely need to be made to things you enjoy, like cable TV and streaming services. If you lose your job close to retiring and are feeling too much of a budget pinch, you might have to accept retiring later than you originally expected.
2. Scrutinize Your Savings
A sudden loss of income can bleed your finances rather quickly, but having an easily-accessible emergency fund can help save the day. Almost every financial guru will tell you that you should have between three and six months of household income on hand at all times to deal with unforeseen emergencies (some favor an eight to 12 month budget, given the current economic climate).
If you were lucky enough to have an employer-sponsored, tax-advantaged 401(k) plan when you were working, you would have met with your former company to discuss options. As Indeed notes, these options would have included leaving your money with your employer, transferring your 401(k) to a new employer’s savings plan, investing it in a tax-deferred IRA account or cashing out the 401(k) while most likely incurring a penalty and withholding tax.
3. Can You Access Your Social Security Benefits?
And should you? With few exceptions, you should wait as long as you can to start collecting your Social Security payments. If you can avoid touching your retirement plans by receiving unemployment insurance or using an emergency fund, you’ll be better off. Drawing on your Social Security before you reach your full retirement age (66 or 67 years old, depending on if you were born before or after 1960) will reduce your benefits in retirement.
However, losing a job, especially one near retirement, certainly qualifies as an exception. If you have been let go from your job, you simply may not have any other sources of income to rely upon and hence, may not have any other choice but to draw upon them earlier than you had calculated.
4. Planning Makes Perfect
Life rarely goes according to plan, but preparing to the utmost and having a comprehensive strategy in place will soften the blow of an unexpected event such as a job loss. Whether it’s an emergency fund, a well-thought-out retirement approach or an honest look at your current budget and savings, a Plan B for life’s possibilities is indispensable for navigating any confusing transition period.
It’s never too soon to start planning for your unpredictable future. The more you are prepared mentally and fiscally for something unpleasant and unforeseen, the better you’ll be up for the challenge to tackle “what’s next.”