Question: I’m 59 with $1.7 million in savings and just found out my team is being phased out in January. I’m getting a six-month buyout package. Should I just retire at 59½, or try to find another job?
Answer: The U.S. economy is generally in a good place, and the unemployment rate is fairly low. Yet many people are worried about layoffs going into the new year.
Part of it stems from what Glassdoor calls the “forever layoff” trend. Small layoffs of under 50 people are now the most common type. And because they only impact small pockets of employees, they’re happening more frequently.
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It’s not surprising, then, that 26% of workers are more worried about being laid off now than they were six months ago, according to a November FlexJobs report.
If you’ve just learned that your team is being phased out in January, it’s probably not the news you wanted going into the holiday season. But if you’re getting a six-month buyout package, at least you have time to figure out your next move.
For people in their 30s, 40s, or even early to mid-50s, pivoting to a new job may seem like the next logical step. But if you’re 59, you may be wondering whether it pays to look for a new job given your age and the state of the labor market.
With six months of severance coming your way, you’ll be getting paid long enough to tide you over until at least age 59½, which is when you can tap a tax-advantaged retirement plan like an IRA or 401(k) without facing an early withdrawal penalty. And if you already have $1.7 million saved, you have a reasonable cushion to work with.
Still, that doesn’t mean rushing into retirement is your best choice. You may want to explore other options so that you don’t deplete your savings prematurely or end up in a situation you aren’t happy with.
Consider a different type of work
If you’ll be retiring when you’re close to 60, you’re ending your career early, but not that early. You still need to be careful with your $1.7 million in savings.
The 4% rule says you can take a $68,000 withdrawal from your savings your first year of retirement and adjust future withdrawals for inflation, all the while giving your nest egg a strong chance of lasting 30 years. So you’ll need to ask yourself whether $68,000 is enough to live on, especially given that at 59, you’re still a good three years away from being able to claim Social Security benefits.
You’ll also need to decide whether you’re comfortable tapping your savings at 59, rather than waiting. If you don’t love the idea of giving up your paycheck completely, Christine Mueller Coley, Senior Vice President and Wealth Advisor at SteelPeak Wealth, says that in this situation, you can explore what she calls a “non-career role.”
“Many of my clients have taken full-time positions in hardware stores, sporting goods stores, and similar workplaces,” she says. “These jobs offer benefits, provide steady hours, and allow for a gentler transition into retirement without the stress of a traditional career role.”
Most importantly, says Coley, a “non-career role” could provide you with health coverage, bridging the gap between early retirement and Medicare, which you don’t become eligible for until you turn 65. That’s especially important now, as Congress debates subsidies for the Affordable Care Act and the cost of health care.
Coley also says that local governments often hire for temporary roles, so that may be a place to look if you’re interested in a six- or 12-month contract once your job comes to an end. Remote part-time jobs are worth looking at, too, she says, allowing you to earn some money without requiring a full-time job commitment.
Figure out what you really want
You may see your forced buyout as an opportunity to pivot into a more rewarding job. Or, you may be relieved that you’ve potentially been given the green light to retire.
Keith Spencer, CFP, founder and financial planner at Spencer Financial Planning, says it’s important to figure out where you actually want to go from here.
“There are two major factors to consider,” he says. “First, do you have enough money saved up to last through retirement at your desired lifestyle? Second, what do you want your life to look like over the next few years?”
The money aspect boils down to how much you want to spend. And if you have modest needs, $1.7 million in savings might be plenty, Spencer says. It’s important, though, to be honest about your spending plans, because if you’re used to a large salary and don’t want to scale back, stopping at $1.7 million could leave you with a big shortfall.
Just as importantly, though, Spencer says you need to ask yourself whether you’ll be happy not working.
“The prospect of retirement might sound enticing at first, but is it what you truly want?” he says. “I encourage my clients to think of it this way. Don’t just retire from something. Retire to something. Retire to something you’re excited about that will take up your time in a meaningful way.”
Of course, Spencer recognizes that continuing to work and/or finding a new job will present its own challenges for someone on the cusp of 60. However, he says, “You can see the word ‘challenges’ as a positive or a negative.”
All told, a situation like this requires you to dig deep and be honest with yourself.
“The prospects of [finding and adjusting to a new job] might fill you with excitement, dread, or something in between,” Spencer says. “I’d encourage you to listen to what that inner voice is telling you as you think through these things.”
