Wealth Matters: Laid off? Maybe you can retire

First, let me offer my condolences. Getting laid off hurts. I’ve been there. One day you’re doing good work for good people; the next you’re walking around Costco surprised how empty it is on a Tuesday afternoon. But if you’re in your 50s or 60s and have a $1,000,000+ saved, that layoff might also be your first real chance to ask:

“Do I actually need to work anymore?”

In this article, I’ll walk you through how to quickly assess whether work is now optional for you.

As a financial advisor, I've seen cases where people turn an unexpected job loss into an opportunity for early retirement. While being laid off can feel devastating, it might be the perfect moment to evaluate if you're financially ready to step away from the workforce altogether.

Take a Deep Breath

Before making any major decisions, give yourself time to process the emotional impact of job loss. Your severance package (if you received one) provides a financial buffer to carefully evaluate your options. This is not a decision to make in haste or under emotional stress.

For myself, after commiserating with my co-workers that were also laid off, I took a trip to Puerto Vallarta. I received a severance package and had savings, so I had a bit of time to take a deep breath.

Explore Your Options

Now jobless with a bit of a runway, the world is your oyster. It’s worth considering every option…

• Sideways move, a similar role in a similar company

• Diagonal move, promotion to higher role in a similar company

• Back to school for a different degree or a higher degree

• Complete job and industry change

• Start your own business (the option I chose)

• Work part-time while you ponder your next move

• Consult in your industry

• Retire

I’m sure at least one of these options stands out given your current situation. 

Tell me, if you won the lottery next week, how would that change your choice? Would you still make that sideways move? Maybe you would still go back to school, but would you take part-time work? Or, maybe you would retire?

Brightside Definition of Retirement: having enough money to make work optional, whether you work or not, you could live off of your assets for the rest of your life.

If your answer was not to rush back to work, then we should at least explore the retirement option.

Assessing Your Retirement Readiness

Here's what to evaluate to determine if retirement is viable:

1. Your Numbers

• Total retirement savings across all accounts (401(k)s, IRAs, investment accounts)

• Expected Social Security benefits (consider reduced benefits if taking early)

• Monthly expenses and how they might change in retirement

• Outstanding debts, particularly mortgage payments

• Healthcare costs until Medicare eligibility at 65

2. Your Timing

• If you're 59½ or older, you can access retirement accounts without early withdrawal penalties

• Being 55 or older when laid off may qualify you for penalty-free 401(k) withdrawals from your most recent employer - Look into the Rule of 55 to learn more

• Consider whether bridge income is needed until Social Security or pension payments begin

3. Your Lifestyle

• Could you reduce expenses?

• Do you have other income sources (rental properties, side businesses)?

• Are you willing to work part-time or consult to supplement income?

• Are you open to moving to a lower cost-of-living area?

• Are you open to downsizing if needed?

Making It Work: Strategic Moves

If the numbers look promising, consider these strategies:

1. Maximize Your Severance: Negotiate for extended health coverage if possible

2. Roll Over Your 401(k): Consider moving employer retirement accounts to an IRA for more investment options and easier management - Note: Explore the Rule of 55 before deciding to complete a rollover.

3. Create a Healthcare Bridge: Explore COBRA, private insurance, or healthcare exchanges to cover the gap until Medicare

4. Optimize Your Portfolio: Adjust your investment mix to balance growth needs with income generation

5. Tax Planning: Structure withdrawals to minimize tax impact and avoid pushing yourself into higher brackets

When Early Retirement Might Not Be Right

Be cautious about retiring early if:

• Your retirement accounts took recent heavy losses

• You have significant debt

• You're supporting dependents

• You haven't saved enough to maintain your desired lifestyle

• You genuinely enjoy working and aren't ready for retirement - If this is your situation, I would recommend building out a financial plan to fully understand your situation.

Next Steps

If you're considering retirement after a layoff:

1. Gather all financial documents

2. Calculate your retirement income needs

3. Meet with a financial advisor to review your specific situation and discuss various withdrawal strategies

4. Consider a trial run of living on your projected retirement budget

Remember, retirement doesn't have to mean never working again. Many retirees find fulfillment in part-time work, consulting, or passion projects that generate some income or provide health insurance while maintaining flexibility.

The Silver Lining

While job loss is rarely welcome news, it can serve as a catalyst for positive change. There's always a bright side, sometimes you just have to look a little harder, or wait a bit for it to shine through. With careful planning and the right financial foundation, you might find that this career setback opens the door to your next great chapter.

We’ve helped many clients transition from work to retirement and have seen the pitfalls. If you’d like to discuss how we can help you, set a time to speak with us and we’ll work through all your wealth matters together.