Saving for retirement is a challenge, but the millions of Americans in their 50s and 60s who have been laid off during their peak earning years face a unique uphill battle. Simply put, unemployment and underemployment pose a real threat to a secure retirement.
On average, older workers remain jobless for about a year, far longer than younger workers. While some who have the misfortune of getting laid off go on to have successful “encore careers,” many settle, somewhat unhappily, into “bridge jobs” between their former careers and retirement. These positions tend to offer lower pay and reduced benefits than their previous jobs.
An Urban Institute report found that median monthly earnings fell 23 percent after an unemployment period for re-employed workers age 50 to 61 vs. just 11 percent for workers age 25 to 34.
(MORE: Laid Off at 60: What to Do Next)
So how can you keep your retirement dreams alive if your employer gives you a pink slip after age 50? Here are eight pointers:
1. Consider being in the job market as an opportunity. Stay positive. Maybe you’ve always wanted to teach, but didn’t have the time while you were in the corporate world. Maybe you’ve longed to start your own business. Your new job status could be a blessing in disguise — the impetus you need to pursue your dreams.
2. Review your finances. Before redoing your resumé, get an accurate read on where you are financially. Ask yourself these questions:
- Do you have a good-sized emergency account?
- How long can you last without a paycheck?
- How many more years do you want to work?
- How much money do you need to make in your next job?
You may find, especially if your children have graduated from college or your mortgage is almost paid off, that you no longer need to earn what you did at your last job. Or, if your children attend college, they might qualify for additional financial aid given your recent drop in income.
3. Separate your “must haves” from your “don’t needs.” You’ll be amazed when you take pen to paper and create a budget just how many “essentials” are no longer truly necessary.
Look for trimmable expenses such as lawn maintenance, gym and country club memberships and Netflix accounts. Another big drain could be a life insurance policy you still have in force; if the kids are out of college and employed, it may no longer be necessary.
4. Don’t be a stickler for earning the same salary in your next job. You may need to take a lower-paying full-time position for the health benefits and to keep busy. A part-time job might also keep you afloat and help protect your retirement savings, though you likely won’t be able to get health coverage from it.
5. Rethink your retirement age. Maybe you’ve been set on retiring at 65. These days, however, 55 percent of workers expect to work beyond age 65 or never retire, according to a survey by the Transamerica Center for Retirement Studies. And 40 percent say they’ll work past 70 or never retire.
Working a little longer than you had anticipated may be necessary if your salary at your next job is significantly less than what you’d been earning.
6. Think twice before claiming Social Security benefits. You can start collecting a reduced Social Security benefit at age 62, but your benefit grows by 8 percent a year, every year that you don’t file until age 70.
If you can, it may be wise to make use of your retirement savings for a few years and allow your Social Security benefit to grow — at least until you reach your Full Retirement Age of 66 or 67.
Keep in mind that if you have a Roth IRA, you can withdraw your contributions — not the earnings — at any time and for any reason, tax-free and penalty-free. The same is true if you converted to a Roth IRA from a traditional IRA.
7. Invest in your own education. Some second careers may require additional classes or training. If you have any money left over in your children’s 529 college savings accounts, you can name yourself as the new beneficiary and use those assets for your own continuing education. Or, if you have a specific advanced degree in mind, you may be able to set up a tax-deferred 529 account to fund your own education.
8. Keep saving for retirement. If you are 50 or older and beginning new work, it’s important to redouble your efforts to save in the company’s 401(k). Employees 50 and older can stash an extra $5,500 because of their age, due to what’s known as the catch-up provision.
In 2014, the maximum 401(k) contribution is $17,500 or $23,000 for people 50 and older. Next year, the limit will be $18,000 or $24,000 if you’re 50 or older.
If you have a financial adviser, consulting with him or her can provide the insight, motivation and discipline you may need to ensure that your job loss won’t derail your retirement goals.
Next Avenue Editors Also Recommend:
- 8 Job Search Tips for Unemployed Executives
- Does ‘Out-Of-Work’ Mean Damaged Goods?
- 7 Ways Older Workers Can Win at Job Interviews
- 10 Tips to Supercharge Your Savings
Next Avenue brings you stories that are inspiring and change lives. We know that because we hear it from our readers every single day. One reader says,
"Every time I read a post, I feel like I'm able to take a single, clear lesson away from it, which is why I think it's so great."
Your generous donation will help us continue to bring you the information you care about. Every dollar donated allows us to remain a free and accessible public service. What story will you help make possible?