Lose your job but not ready to retire? With the current market conditions, many Americans are losing their jobs. In fact, according to the Bureau of Labor Statistics, the unemployment rate rose 0.90 to 4.4% in March. This was the largest rate increase over-the-month since January 1975.
Losing your job is stressful, no matter when it happens. However, those who are inching towards retirement may find this loss even more detrimental. So, if you recently lost your employment, here’s what we recommend you do to ensure your future financial well-being.
Review your severance agreement with a fine-tooth comb
While there may not be any laws that require employers to give past employees a severance package, many employers have severance policies. Employers often create severance packages to avoid lawsuits in the future due to wrongful termination.
Severance agreements may include a non-compete clause, which may prevent you from working for a competitor. So if you need future employment, this could be a bit of a challenge. Therefore, make sure you’re clear on the restrictions you agree to in exchange for your payout.
Additionally, be sure you’re not forgoing any of your vested retirement benefits. Your agreement should state the status and amounts of your stock options, 401(k), and pension. You will want to ask if there is an opportunity to make a final retirement contribution, which may include a company match.
If you do receive a severance package, avoid signing anything immediately. The Age Discrimination in Employment Act (ADEA) of 1967 protects those who are over 40 by giving you 21 days to review the agreement. If they don’t give you enough time to review, your employer may not be able to lay you off due to discrimination claims. You will want to carefully review anything your employer puts in front of you before you give your John Hancock willingly. If you sign without closely looking at the agreement, you could be forfeiting your right to sue in exchange for the severance package.
Understand your health insurance options
If you lose your job, it means you will lose your health insurance as well. If you’re under 65 and don’t qualify for Medicare, you will have to either apply for individual health insurance coverage or consider coverage under the Consolidated Omnibus Budget Reconciliation Act, also known as COBRA. With COBRA, you can continue your current health care benefits even after you lose your job.
However, depending on applicants’ circumstances, COBRA benefits only last for a certain period, usually between 18 and 36 months. It also tends to be expensive, since employees must pay their portion and their employer’s portion of the premium payments. Additionally, you may have to pay a 2% administration fee.
If you can’t afford COBRA, you may want to apply for private health care insurance through the Affordable Care Act (ACA) Health Insurance Market Place. Health insurance plans through the ACA Health Insurance Marketplace come in a variety of prices and can have income-based premiums and tax credits for those who qualify.
Examine your financial situation
After a job loss, you should also take time to asses your finances. Even though you may feel emotionally and physically drained, this is an essential step. If you have a financial planner, it’s wise to make an appointment to review all of your investment, retirement, and savings accounts. Your financial planner can help you sort out and organize all of your accounts to determine what resources you have.
Your financial planner can also help you reevaluate your financial plan, assisting you in determining how much longer you need to work before retirement, and what adjustments you need to make to account for lost income.
For example, even if you’re near retirement and have a substantial amount of savings, your financial planner may recommend part-time employment for a few more years. Often, many underestimate how far their money will go. Retiring five years earlier than expected can make a big dent in your retirement savings. Therefore, working in any capacity can supplement some of your lost savings.
Assess your money needs
Now that you understand your financial situation, you can address some of your cash flow needs. To avoid tapping into your retirement savings, consider downsizing your lifestyle by eliminating non-essential expenses. For example, let’s say you have a cable package with all of the streaming services. In this time of need, it might be wise to cut some streaming services or your cable package completely.
You may also want to cut back on some of your expenses so your savings and severance pay can go a lot further. If your cash flow is a concern, you may want to limit your retirement savings contributions for now, until you find a new employer.
Seek income opportunities while you search for new employment
While you search for a new job, seek different income opportunities. Reach out to people in your line of work and see if they have any part-time work available. This may also be a great time to pick up a side hustle and exercise your skills. For example, if you have great helper or handyman skills, you may consider doing a few side jobs to make extra cash.
You can also consider doing temp or consulting work. People often underestimate the power of a temporary job or consulting on a certain project. What’s more, temporary work could also lead to full-time employment and help you sharpen your skills.
The bottom line
If you lose your job, but you’re not ready to retire, don’t worry, not all is lost. Take a deep breath and start making your plan of action. When you take time to evaluate your financial situation before you act, you create an opportunity to move forward with a stronger financial plan than before.
As in any tumultuous time, it is wise to consult with an expert. Our team is ready to assist you with any retirement questions that you may have when creating a smooth path to retirement.