7 ways to protect your retirement after a layoff
The majority of retired people age 70 or younger stopped working before they'd planned to
Being an expert in managing layoffs doesn't make it easier when it happens to you.
Sixty-one-year-old Mike Schaaf had plenty of warning that he was going to be downsized in late 2009. As the human resources manager at a Louisville chemical manufacturer bought by a larger company, he'd been helping to arrange severance packages for terminated workers. When his own layoff came in December of that year, he figured he'd go out and get another job — he was 57 and wanted to work till at least age 62.
But after several months of looking, he concluded that "nobody wants a nearly 60-year-old guy who's been doing primarily labor relations and human resources in the same company for the last 24 years… it was kind of a tough pill to swallow."
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Schaaf is one of many older Americans who had their retirement dreams shattered by both a merger and the Great Recession, according to survey results released in September by PNC Financial Services Group. Among those age 70 or younger and retired, the majority of people polled said they'd quit working before they'd planned to — 40 percent of people who had changed their retirement plans said they'd been forced out by health issues and 26 percent by employer issues like mandatory retirement or layoffs.
Schaaf counts among the lucky ones, since he got a severance package and has both a 401(k) and a pension that will carry him and his wife through their golden years. Many other retirees find themselves in financial crunch; in response to a survey in March by the Employee Benefit Research Institute, only 52 percent of retiree respondents said they could definitely come up with $2,000 if an unexpected need arose within the next month.
Patricia, another 61-year-old, finds herself in that group. In July she lost her job as executive director of a nonprofit in a southwestern city. (She didn't want her name used in this story because she's still in a dispute with her previous employer.) During the recession, her savings took a huge hit both because of the stock market crash and two years of being unemployed after a previous layoff. She's interviewing this week for another job and needs it — she thinks her remaining savings will last her about two more months.
Financial experts say there are ways to adapt to a new financial picture after an unexpected job termination later in life. Here are seven tips for managing an early forced retirement and staying solvent.
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1. Leave on good terms
It's easy to turn your frustrations on your employer if you're downsized, but that's a mistake, says a 2012 report on forced retirement from the Society of Actuaries. Leave gracefully — unless you've been fired or are suing your employer, there could be a chance for temporary contract work or rejoining the company when things turn around. Plus, if former employers and colleagues feel for you, they're a good source of job leads and will give you positive references, says the report.
2. Do cash-flow projections
Get a realistic picture of your finances going forward. First, tally your sources of income, like pension payouts, interest on investments or bonds, cash-value insurance policies, real estate income, Social Security, unemployment payouts, or annuities, says financial planner Rich Arzaga of Cornerstone Wealth Management. Then look at your expenses — it's common to underestimate them, so check your last two years of credit card and bank statements and cash layouts, and average in the cost of big-ticket items like a replacement car or capital repairs to your home.
With those in hand, Arzaga recommends getting a financial planner involved to help you make cash-flow projections under different scenarios from now till the end of your life. A good planner will include taxes, inflation, and likely out-of-pocket health care costs in their projections. Don't underestimate how long you'll live, Arzaga says — a quarter of men who reach age 65 in good health live to age 92 and a quarter of women to age 94, according to data from Fidelity Investments.
For an estimate of when your end might come, check out the Living to 100 Life Expectancy Calculator or this mortality calculator developed by researchers at the University of Pennsylvania.
3. Trim your budget
If your projections show you need to cut costs, there are many ways to do so, starting with essentials — like finding cheaper housing, getting higher deductibles on insurance, and choosing lower-cost transportation options, says Joyce Morningstar, a senior wealth manager with Dynamic Wealth Advisors.
If you live in a high-tax or high-cost area, consider moving to a cheaper region or renting out part of your house, suggests financial planner Paul Jacobs of Palisades Hudson Financial Group. And personal finance author Jean Chatzky, who runs the online Money School, recommends going through your monthly bills to see what you services you can shed or get a better deal on, like your cell phone, cable, and health club.
4. Reinvent your work
Don't give up on the idea of working again. Be willing to rethink your career and settle for less pay than you were getting before, says Kentucky-based CPA and financial planner Mackey McNeill. Even if you find something part time or freelance, it will slow down the pace of drawing down your assets, which can make a big difference, she says.
With Baby Boomers hitting their sixties, there are now lots of online resources out there to help people find jobs later in life, such as Forty Plus, Retired Brains, and Senior Job Bank.
5. Stick to your Social Security plan
Don't let your layoff force you to draw Social Security earlier than you'd planned if you can help it. Tapping your benefits early can cost you a lot long term, says Jacobs. You can start collecting any time between ages of 62 and 70, but for every year you wait, your check grows by about 6 percent. And there's good evidence that your portfolio will last longer if you live off of your own assets first so that you can delay drawing your Social Security, according to a study last April in the Journal of Financial Planning. For more help, check out AARP's Social Security Calculator or this calculator developed by economists Russell Settle and Jeffrey Miller.
6. Be strategic if you draw down investments
There's nothing necessarily wrong with tapping the principal on your investments if you do it slowly, according to financial planner Douglas Goldstein, author of The Retirement Planning Book. A financial advisor can help you decide on a reasonable rate at which to draw down so that your money will last till the end of your life.
If you do decide to draw on your investments, you'll want to start with those that have a lower return — for example, pulling from a cash account that generates little interest before tapping an IRA, says planner Pierre Vogelbacher of PNC Wealth Management.
7. Get out and network
After a forced retirement, seek out others who are going through the same experience, which will help reassure you that you're not alone or somehow defective, advises Larry Moskat of Retirement Income & Inheritance Advisors. "Networking will pay dividends in self-esteem, which in turn will fortify you to identify and move on to your next horizon," he says.
Patricia says that's part of what has kept her positive — she's set up a support group for young executive directors at her church, does fundraisers, and talks regularly to people in her network. "I'm not going to go down over this," she says.
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