Losing a job when you’re in your 50s or 60s can have serious ramifications for your long-term retirement success – on many fronts. Here’s how, and what steps you can take to help reduce the impact a late career layoff can have on your future retirement income.
For one, losing your job later in life may hinder your ability to keep saving. If you haven’t hit your goal for total retirement savings, a layoff is bad news, in part because there’s no doubt age discrimination can hinder one’s ability to find a new job when the gray hairs are starting to show. (The good news is that older workers are less likely to be laid off than younger workers, but the bad news is that if they do lose a job, it takes them longer to get re-hired, according to the Urban Institute. Read more here: http://www.urban.org/research/publication/can-unemployed-older-workers-find-work.)
Another problem is that a long bout of unemployment may force an unemployed worker to tap retirement savings or even, at age 62, tap Social Security benefits early. These decisions—necessary though they may be—can have serious negative ramifications for a retiree’s long-term outlook.
But wait, there’s more. Another serious—and often overlooked—problem to consider is that the Social Security Administration calculates your benefits based in part on the highest 35 years of your earnings. Given that, generally, the highest years of earnings are towards the end of a career, losing a job unexpectedly in your 50s or 60s can mean you lose out on some of those high-earnings years in your Social Security calculation. And that means a lower benefit for your entire retirement, which could last as long as three decades or so.
“If you stop work before you have 35 years of earnings, we use a zero for each year without earnings when we do our calculations to determine the amount of retirement benefits you are due,” says the Social Security Administration.
“Even if you have 35 years of earnings, some of those years may be low earning years. Those low earning years will be averaged in, creating a lower benefit than if you had continued to work,” the SSA says. Read more on the Social Security website: https://www.ssa.gov/planners/retire/stopwork.html
There’s not a lot you can do to increase your Social Security benefits other than to do your best to find a high-paying job as quickly as possible if you lose your job, and delay claiming benefits as long as possible. (Your benefit increases by about 8% a year every year you delay past your full retirement age.) Also, be sure to keep an eye on your estimated benefits by creating an account on the Social Security website. That way you can make sure the SSA is using the correct amounts for each year of your earnings.
However, there are strategies you can adopt proactively to help avoid the worst consequences of a late-in-life layoff:
- Ramp up your savings rate now so that you have six months of living expenses saved in an emergency savings account. That fund will help you avoid tapping retirement savings and Social Security benefits while you search for a new job.
- Keep job skills current and maintain contacts with your network of current and former business colleagues to improve your chances of finding a new job quickly. Studies show that a referral from a current employee can substantially increase job seekers’ ability to land a position.
- Be prepared to work part-time in retirement to make up any shortfall between your living expenses and the income you receive from your savings and Social Security benefits.
- Consider meeting with a financial planner to ensure you have a job-loss emergency preparedness plan in place.
Steven C. Johnson, ChFC, a financial advisor with Finivi, has helped many clients over the past 27 years maximize their Social Security retirement income benefits. Steve is a well sought out speaker for numerous private and public corporations, educational institutions, and social and fraternal organizations on the topics of Social Security and Retirement Income Planning. Need help maximizing your Social Security retirement Income? You can schedule a complementary consultation by clicking here.