Should You Retire Early If You Lose Your Job Later in Life?
Written by
John Csiszar
Edited by
Amen Oyiboke
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If you’re financially prepared, losing a job later in life might not be the end of the world. Although you’d lose a few years of earnings, if you’ve prepared your entire life, early retirement might actually be a viable option.
But if you don’t think you can afford to retire without working another five or 10 years, losing your job can feel devastating. Whether a layoff in your 50s or 60s becomes a crippling setback or a potential opportunity largely depends on your personal financial situation.
Do You Have Enough Money for Early Retirement?
This is really where the rubber meets the road. If you’ve got millions socked away in a savings account, enough to cover more than 30 years of retirement, losing your job might actually be an opportunity to start enjoying yourself sooner than you imagined. But even an overstuffed retirement account might not be enough to cover the shortfalls created by retiring early.
For starters, when you retire early, you’re not just eliminating a few years of your income. You’re also increasing the duration that your savings need to last. If you have enough money in your retirement account to fund 30 years and you retire early, for example, you might need to stretch that money over 35 years instead. To put it another way, if you retire five years early, you’ll need to account for five years of spending rather than saving, and that can swing the pendulum a long way.
Is Your Healthcare Squared Away?
While Medicare doesn’t cover all retiree medical expenses, it’s the fundamental form of insurance for most seniors. The problem for early retirees is that it doesn’t kick in until age 65. Until you hit that threshold, you’ll have to find some type of healthcare solution, whether it’s COBRA, private insurance or a plan from the Affordable Care Act marketplace. If you’re used to your employer paying for some or all of your health insurance, you might be in for a rude awakening.
A related factor in deciding whether to keep working or retire is your health. If you’re dealing with chronic illness or have concerns about longevity, retiring early might make sense. Doing so allows you to enjoy your retirement years while easing worries about outliving your savings.
Can You Cope Emotionally?
While the thought of early retirement is a dream for some, for others, work gives them purpose, social connection, and helps define who they are. If you fall into this camp, even if you don’t necessarily need the money, you might be better off finding another job instead of retiring early.
Some workers also have a negative emotional reaction to being laid off, especially later in life. To counter this, finding another job might not just be a financial necessity, but an emotional one as well.
Action Steps To Take If You Lose Your Job Later in Life
Losing your job at any time, but particularly later in life, can be traumatic. To help you navigate the emotionally charged process, here are some action steps you can take.
- Take a hard look at your finances: Ideally, you’ve already created a projected retirement budget as part of your financial plan. But whether you have or haven’t, now’s the time to closely analyze your anticipated retirement expenses against your expected sources of income. If you can’t fully fund your retirement with some cushion to spare, you may need to return to work instead of retiring early. This is also a great time to consult a financial planner.
- Explore the job market: The job landscape has likely changed significantly since the last time you searched for work. Use digital tools, job boards and networking apps to find positions that match your skills and experience — and that you’ll actually enjoy.
- Secure your health insurance: Major healthcare expenses — which are common in retirement — can derail even the most carefully planned finances. Make sure you have adequate coverage in place before stepping away from work.
- Don’t rush to file for Social Security: It can be tempting to start collecting benefits at age 62 if you retire early, but doing so permanently reduces your monthly payments by up to 30% compared with waiting until full retirement age, according to the Social Security Administration.
Do What’s Best for You — Whether That’s Retiring Early or Working Longer
If you’re already in your late 50s or early 60s, losing your job can put you at a crossroads. For some, early retirement is the best option. For others, finding another job may be a financial — or even emotional — necessity.
Choosing between early retirement and looking for another job can be difficult if you’re already in your late 50s or early 60s, and there’s no “one-size-fits-all” option. As this decision can greatly impact your quality of life in your golden years, it pays to work with a financial professional at this crucial juncture.
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