The financial pressure caused by the coronavirus pandemic has caused many companies to make difficult decisions, from asking people to retire early to laying them off to reduce expenses. Individuals in a good place to retire may be able to accept such offers or simply stop working, but those who need more time to save may find themselves in a difficult position if they lose their employment.
Unfortunately, many people in the United States find themselves in this position. This has triggered some unprecedented moves from the federal government, from stimulus checks to relaxed policies on early withdrawals from retirement accounts. Individuals who find themselves in this situation need to be strategic about their response instead of reacting out of anxiety, stress, and worry.
Some key steps to take include:
1. File for unemployment.
Being laid off can shock people, especially if they have been in their positions for a long time and were planning to remain with their current company until retirement. When this happens, filing for unemployment immediately is a critical step that is sometimes overlooked by high earners.
While an unemployment check may be significantly less than normal take-home pay, it is still an income stream that can help cover basic expenses. Furthermore, American workers are entitled to this benefit, so it makes sense to take advantage of it.
2. Assess your current savings.
After filing for unemployment, individuals need to take account of their current financial situations. Analyzing cashflow can help individuals know whether or not they need to reconsider their budgets.
Individuals should clearly account for the purpose of each savings account, whether for a particular financial goal, retirement, or emergencies, to figure out which accounts can be tapped and which should be left alone. Often, meeting with a financial planner during this stage can help people make decisions that will keep them afloat without delaying their retirement plans.
3. Recognize tax opportunities.
While losing employment is a difficult event for anyone, some people may actually benefit from a temporarily lowered income. Individuals can use this period to make some changes in their retirement saving strategies without paying hefty taxes or penalties.
Speaking with a financial advisor or tax planner can help people identify all of their options, which could include cashing in on stock options, selling appreciated stocks, converting a traditional IRA to a Roth IRA, and maximizing IRA distributions. Refocusing the situation on some positive outcomes may help you maintain some optimism.
4. Consider Social Security.
People can start receiving Social Security at the age of 62, although if you claim at that age your benefit is reduced to only 75 percent of the amount you would be paid at full retirement age. In general, individuals should avoid tapping into Social Security early if they have other sources of income. However, in some cases, it could be beneficial to begin claiming early, especially if it can help bridge individuals to other financial goals.
Importantly, individuals can get Social Security and unemployment at the same time, but the latter benefit may be reduced as a result. Of course, individuals should make sure they understand the ramifications of claiming Social Security early if they decide to do this.
5. Rethink your employment strategy.
When individuals are close to retirement and lose a job, they may need to rethink their employment. The impulse move is to apply for new jobs, which is a good start, but individuals also need to get creative.
Often, people can seek a different sort of position that is perhaps more in demand. In other cases, people may want to consider becoming a consultant and taking on freelance work rather than going back to a salaried position.
Some people actually choose to go for a less stressful job than they had if they can still meet their financial goals with the lowered income. In the meantime, gig-type jobs can help make ends meet.
6. Move toward retirement.
While not everyone will be in a position to move toward retirement, doing so can actually help reduce expenses. For example, if you are planning to downsize your home, it could make sense to sell the house sooner rather than later and reduce that monthly expense. People may also want to consider moving to a different city if they wanted to do so for retirement.
Often, these plans are made to minimize the cost of living, so acting on them now just means reducing monthly expenses. Financial advisors are a great resource to help run the numbers and figure out what acting on these plans could actually mean.
7. Maintain your health insurance coverage.
One of the things that can sometimes slip through the cracks during times of stress is health coverage. People need to make sure they have a strategic and affordable plan for maintaining coverage.
Individuals who are 65 or older can rely on Medicare, but people who are younger may need to purchase a plan on the open market. COBRA is another option, but the costs can be prohibitive. Even on the open market, costs can be substantial. The need to maintain continuous health insurance can affect other items on this list, such as whether it is necessary to find new employment or act on retirement plans earlier than anticipated.