The COVID-19 pandemic has taken a toll on the United States economy. In June 2020, the Bureau of Labor and Statistics reported that over 40 million people had been unable to work in the previous four weeks.
After younger workers (25 to 34 years of age), Americans aged 55 years and over were the age group hardest hit by unemployment. The unemployment rate for people nearing retirement was at 11.8% in May 2020, compared to 2.7% in May 2019. Of course, the pandemic isn’t the only time that near-retirees have been laid off. It happens all the time, unfortunately.
If you’ve been laid off prior to retirement — pandemic-related or not — you’re not alone. We at Guiding Wealth want to help, which is why we are sharing steps you can take to protect your finances and get back on track to retirement.
Step 1: Assess your situation
First, look at your situation and get grounded in your reality. It’s easy to get swept up in emotions after a layoff, especially if you were so close to retiring or really relied on your income to reach that special milestone. Emotions are going to run high, and that’s OK. But allow yourself time to focus on the situation at hand so you can make the best decisions for your retirement.
Ask yourself: Are you still able to retire without worry despite the layoff, or do you need to make moves to find new employment right now?
If you’re not sure (most people aren’t!), there are a couple things you can do to figure out your next steps:
Check on your emergency fund.
The general rule of thumb is to keep 3 to 6 months of expenses in your emergency cash fund, but it can be higher if you’re more cautious. You may be able to use your emergency fund to carry you through to your desired retirement date, or maybe not. Assess what you do have (even if you don’t have 3 to 6 months’ saved up), and calculate how long your fund will last. Then, you can decide how quickly you need to seek new employment (if at all).
Calculate your income.
Make note of how much income you’ll receive before your employment ends, including final paychecks or any severance pay. This can help you formulate a plan in the coming months and determine how quickly you need to look for new work (if at all). We’ll talk more about this in just a bit, but take the first step to figure out how much money you do have coming in so you have a realistic overview.
Step 2: Apply for unemployment
Each state in the U.S. runs its own unemployment benefits program. First choose your state to learn how to apply for unemployment. You may be able to file online, by phone, or in person.
This can help you get by after a layoff, especially if you need to find a new job but haven’t found one quickly. In some cases, you can draw on unemployment until your official retirement age, at which time you can apply for your Social Security retirement benefits.
Laid off due to the pandemic? The CARES Act previously provided an additional $600 a week in unemployment benefits on top of what you’d receive through your state’s program, but that ended on July 31, 2020. However, some states may still provide extended benefits that last for 13 weeks to those who qualify, and the federal government is currently voting on an extension. As of August 24, 2020, the federal extension included an additional $300 in employment, with states potentially adding another $100 to support their residents.
If you’re self-employed, you may be eligible for unemployment benefits under a program called Pandemic Unemployment Assistance (PUA), which is different from the regular unemployment program in most states.
Step 3: Trim spending where you can
You already looked at your last bit of income to see how much money is coming in (if any). Now, it’s time to look at your income and expenses to decide if you need to cut back and how.
If you’re laid off before retirement, you may not have to worry about the expense to commute but you may need to consider healthcare, housing, or other expenses that were easily paid with a steady income and job benefits. If you have more free time than before, you might find that your discretionary spending goes up, too.
It’s time to assess where your money needs to go so you can figure out if you need to find another job to tide you over until retirement. To do so, look at each expense and ask yourself questions such as:
- Is this an essential expense?
- Is this the best use of my money right now?
- Does this bring me closer to my financial goals, or does it hinder them?
- Can I find a cheaper alternative to this expense?
If you’re not sure that you’ll be able to pay your bills but haven’t found a job to tide you over yet, talk to your bank, landlord, or companies in charge and ask them to work something out for you. You may be surprised at how many are willing to make arrangements, either by deferring payments for a period of time or setting up a special payment plan. The least they can do is say no; it’s worth a try.
Step 4: Take withdrawals from accounts
After trimming your budget and applying for unemployment, you may need a little extra help covering your bills. It’s a good time to think about withdrawing money from your long-term investments.
Usually, if you withdraw from retirement accounts before reaching age 59 ½, you’d incur a 10% early withdrawal penalty. The CARES Act eliminated this penalty for those affected by COVID-19 or have a pandemic-related job loss. Instead, you can include the money you withdraw as income in your taxes, spreading it evenly over tax years 2020, 2021, and 2022. Or, if you can pay back what you withdrew from your accounts within three years, you can claim a refund on whatever taxes you paid.
Whichever you choose, you can withdraw up to $100,00 per person. Remember that it may take several weeks to receive your money, especially if company response times are longer than usual. Take that into account when planning your budget and expenses, and before deciding whether or not to seek other employment.
Step 5: Consider launching a second career
You may be looking for a job similar to the one you lost, but sometimes life’s twists and turns also give us a great opportunity. If you’ve ever considered switching careers, a layoff might be the right time to launch a second career centered on your hobbies or passions. You may also be able to work part-time or seasonally instead of full-time. Use our Career Change Calculator to figure out if you can afford to start that second career — or even if you can afford to enjoy your hobbies unpaid.
Redirecting retirement after a layoff
Losing your job unexpectedly, especially right now, can be a scary and overwhelming experience. Even after taking all these steps to protect your finances, you may feel more comfortable moving forward with financial advice from a trusted expert.
A financial advisor at Guiding Wealth can assess your finances, build a new and improved plan for your retirement, and help you navigate this life change. Contact Guiding Wealth to get started today.