Unfortunately, some people will be confronted with the challenge of losing their job shortly before they plan to retire. It can certainly be a scary development, but one of the most important things you can do is not panic.
A Kiplinger article, 4 Steps to Take if You Lose Your Job Near Retirement provides some information that you may find useful if you ever find yourself in this situation.
Assess and adjust
It first recommends assessing and adjusting your budget. A well-designed and maintained budget should allow you to quickly determine how much money is coming in and out of your account each month.
As you look at your budget, are there some non-essentials you could eliminate, even if temporarily? You may be able to cut back on things like streaming subscriptions or meals out in an effort to stabilize your finances after the shock of an unexpected job loss.
Going through your budget with your financial services professional may also help you determine if delaying your retirement by an additional year or two may be the smart play.
Evaluate your savings
Next, closely evaluate your savings. Hopefully, you’ve managed to build an emergency fund, which may help you cover some of your necessary expenses while you look for work.
Again, look closely at your expenses, if it takes you six months to find a new job, will you have enough saved to get you through? Do you have enough to cover emergencies?
You may also want to speak to your financial services professional about whether you may benefit from rolling your current 401(k) accounts into an IRA. In certain circumstances, you may be able to roll your 401(k) into a traditional IRA without paying income taxes or you may be able to roll your contributions into a Roth IRA, which may allow you to pay income taxes now, rather than in retirement.
It’s important to note that these steps wouldn’t be the right move for everyone, which is why a discussion with your financial services professional in which all the potential pros and cons are weighed, is so important.
Social Security flexibility
The next potential step is working with your financial services professional to assess your various Social Security benefit options.
You can begin claiming Social Security benefits at age 62, but you may find there are financial incentives to wait to file when you’re older.
For example, for those born in 1960 or later, the full retirement age is 67, and if you wait until that age to file, you’ll receive 100% of your benefit. Filing at age 62 means you’ll permanently receive less than you would have if you’d waited until your full retirement age to file.
Furthermore, if you wait until after you turn 67 to file for Social Security benefits, your eventual benefit payment will grow an additional 8% until you turn 70, at which time there may be less incentive to delay filing.
Although you may be planning to wait until at least age 67 to begin claiming your Social Security benefit, if you lose your job shortly before retirement and need income, filing earlier for Social Security may be an option for you.
Consider talking through your options with a financial services professional before you make any final decisions about Social Security.
Your plan matters
Finally, you should have a plan in place. That’s why working with a financial services professional may be so important. Nobody can predict the future, but at the same time, you may be able to take measures that help you manage what the future throws at you.
A thorough financial strategy, that you diligently update as needed, may be able to provide a degree of safety against the kind of financial upheaval a job loss brings with it.
Advisory services offered through Buska Wealth Management, LLC an SEC Investment Advisor. Insurance products and services are offered through Buska Retirement Solutions, Inc., an affiliated company.
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