Now what do you do?!
This is not a happy scenario, but it's one we all should be prepared for as we approach retirement. Life is messy and random at times. Your best way to deal with the unexpected is to always have a back-up plan.
Retirement Plan B
If you are forced into retirement sooner than you expected, your first thought should be, “Don't panic.” You won’t be the first person this has happened to, and you won't be the last.
Paraphrasing Napoleon Hill, every adversity carries with it the seed of a greater benefit. A good dose of philosophy and positive attitude will help your cooler head prevail so you can land on your feet.
Head home straight away, turn on your computer, and open up your 30-year retirement planning spreadsheet. Then start working on Plan B to help you financially navigate this (hopefully) temporary adversity.
Don't Throw Out Retirement Plan A
While doing this, keep in mind that your goal is to try to keep your 30-year retirement plan as intact as possible.
How so? By doing those basic things that can bridge the gap in loss of income (for example, possibly immediate part-time work and/or simple cuts to discretionary spending).
If the gap in income is in danger of lasting longer and digging deeper into your savings, it might be necessary to take your Plan B to another level.
The BIG QUESTION: Can I Retire Now?
The first question you need to ask yourself after being laid off from a full-time job is:
“Can I retire now?”
The only way you can determine that is by using your retirement spreadsheet to see if you can work it out with the retirement assets and income streams you have accumulated so far.
Your 30-year retirement spreadsheet is your master tool to help you gain control of the situation. It gives you the ability to test multiple scenarios of alternative sources of income, cuts in spending, and even liquidation of certain easily-disposable assets which taken together, can bridge the adversity gap.
There are many possible answers to the question, “Can I retire now?”
"Yes" Retirement Scenarios
- Yes, I can, but I will need to pick up a part-time job for a while.
- Yes, I can, but I will need to pick up a part-time job and make some discretionary spending cuts.
- Yes, I can, and all of the above, plus, I may need to sell some assets.
"No" Retirement Scenarios
- No, I've got to find another full-time job for X more years until I retire.
- No, I’ve got to find a full-time job and, in the meantime, I need to cut my spending.
- No and all of the above, plus, I need to find part-time work immediately.
It’s a complicated question and answer that only you can figure out. You can't do it in your head.
You need your 30-year retirement spreadsheet tool to model your financial future as realistically as possible. And it is always a good idea to seek the guidance of a financial professional, but you should equally own and fully understand any Plan B that you co-develop with your financial professional.
As you work on your Plan B, be aware of the following key retirement financial milestones to make sure your planning takes advantage of these options:
- Age 50 - You can make catch-up contributions to your IRA(s) or qualified employer retirement plan
- Age 55 - You may be able to take money from a 401(k) plan without early withdrawal penalties
- Age 59 1/2 - You may withdraw money from your 401(k) or traditional IRA without early withdrawal penalties (income tax applies)
Other important retirement milestones:
- Age 62 - You can start claiming Social Security
- Age 65 - Eligibility for Medicare starts then
- Ages 66/67 - For most people, this is the Full Retirement Age under Social Security
- Age 70 - This is the last age you can wait to take your Social Security benefits
- Age 70 1/2 from 2019 - You have a deadline of next April 1 to take your first Required Minimum Distributions (RMD) from tax-qualified accounts
Here are a few steps you can take to generate income:
At this stage of your life, you probably thought you would never have to look for a job again. But if you need to re-employ yourself full-time, you know how to do this.
However, if a temporary part-time job would sufficiently replenish whatever income you may be losing by an unexpected early retirement, you should start networking.
Put the word out that you’re looking for an employer who would value hiring an experienced, skilled, and mature worker. Use your social media platforms to spread that word. Also, AARP has a long list of resources that can be extremely useful in trying to find part-time work as a mature-age American.
Gig Economy Options for Immediate Income
If you need to work immediately, consider freelance or consulting opportunities that use the skill set you built over the years. Speak with trusted contacts in your personal network to identify any potential income opportunities there.
And if you need another option for immediate income, there is no more direct route to working than driving for Uber and or Lyft.
That might not appeal to you, but you'd be surprised how many seniors are doing this for this very reason, and they enjoy it! The application approval process is very easy and quick as long as your car is 15 years old or younger.
There may be other "gig economy" options such as TAKL (home services and handyman tasks) that may be a better fit to your skills and inclinations than driving for Uber.
You may start drawing Social Security at age 62 if need be. But keep in mind that your benefit will increase by about 8% each year if you defer claiming it. With the passing of the SECURE ACT, the latest age you can delay your benefits to is age 72.
If delaying benefits makes sense for your long-term outlook, you might consider building an "income bridge" between your early workforce departure now and when you claim your benefits.
That would involve allocating some of your retirement savings as a short-term income stream before you start relying on Social Security payments as a retirement income source. Be sure to check with your financial professional as to whether this might be an appropriate strategy for you.
You may be able to access money from employer-sponsored retirement plans – 401(k)s, 457s, and 403(b)s – and IRAs and Roth accounts as early as 55 without penalties. But on your tax-advantaged accounts (or where you built up retirement savings tax-deferred), you must start Required Minimum Distributions (RMDs) by April 1 of the year after you turn 70 1/2 from 2019.
In all these cases, double-check your options with a trusted financial professional.
This is an opportunity to trim and/or eliminate discretionary expenses that you have been thinking about cutting for a while. Think spending like downgrading your cable TV plan, eliminating your satellite radio in the car, and so many others.
You may have been dragging your feet for years to trim certain expenses. So, the time is now, and maybe some of them can be eliminated permanently.
Retirement Health Coverage
Healthcare in retirement is the big one, though. If you lost your health coverage with the job, there are several options you can evaluate:
- COBRA gives workers (and their families) who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for 18 or 36 months in the event of involuntary job loss.
- If your spouse is still working, you can go on her/his plan.
- Medicare, if you are age 65
- The Affordable Care Act (ACA), or “Obamacare." Be advised that major changes are being proposed to alter and/or eliminate the ACA.
If you need to make any decision in regard to health insurance or Medicare, look for a knowledgeable agent who can help you walk you through your options.
Over the years, you may have accumulated a number of assets for your retirement or for life in general:
Any decisions in regard to buying, holding, or selling equities should be discussed with a securities-licensed financial professional. You probably don't want to start prematurely liquidating any equities in your portfolio. But during Plan B, it is one way to generate quick cash liquidity.
You will want to ask your financial professional about the tax implications of any decision tied to your portfolio.
Over a lifetime we build up a sizeable number of tangible assets:
- Primary house
- Second home (vacation home) or cabin, condo, or timeshare
- Appliances, furniture, art, computers, electronics
- Hardware, tools, lawncare equipment
- Personal property and jewelry
Eventually during the decumulation phase of a 30-year-or-longer retirement, you will begin liquidating, downsizing, and passing on some or all of these assets.
It may be necessary to start this process sooner. In Plan B mode, you gotta do, what you gotta do. You can always repurchase a car or other items when and if your financial picture improves.
Ongoing Steps to Take
Make a pledge that you will revisit and adjust your 30-year retirement plan each month since conditions will be changing. This gives you a feeling of control and keeps your attitude on the positive side of things.
You may find that you made good changes in what you did to find alternative sources of income and to reduce expenses. Consider how these changes have improved your cash-flow situation, and whether keeping those changes permanent might make sense.
You will find the long-term cumulative effect of those changes will bolster your confidence.
And the end-result? Your retirement will be more financially secure, even in spite of the surprise pink slip out-of-the-blue.
Need Help Putting Together Your Plan B?
The good news is you don't have to do this alone. A financial professional can help you walk through the "what ifs," ask the right questions, and create a retirement plan B that helps you get back on track.
If you are ready from assistance, help is a click away. Financial professionals are ready to assist you at JenniferLangFinancialServices.com.
Click here to connect with someone directly.