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Financial Planning for Folks who Lose Their Jobs in Their ‘50s

A financial adviser can do a lot to help those who’ve been laid off manage the shock to their finances and retirement plans.

Unfortunately, losing a job in your 50s is not uncommon these days. This is a time when many people are in their peak earning years and companies looking to downsize realize they can reduce costs by laying these workers off. Besides their sometimes higher salaries, workers in this age group can often be more costly in terms of employee benefits, such as health insurance, as well.

As their financial adviser, clients who have experienced a job loss in their 50s count on you for financial planning advice.

Take Stock of the Situation

As with any major life change, the first step is to take stock of the client’s situation.

A job loss in this age bracket can be particularly devastating for a client who was hoping to stay at their employer until retirement. The first step in this type of situation is to schedule a meeting or phone call with the client to go over their situation.

The questions that your client will likely have will generally center around the impact this job loss will have on their situation. They will want to know if they “will be OK” in many cases.

Termination or Voluntary Buyout Offer?

In some cases, the job loss may involve evaluating a voluntary buyout offer from their employer. Many times these buyout offers sweeten the pot to entice the employees targeted in the offer to leave the company. They may offer additional severance benefits, enhanced pension payouts in terms of allowing these employees to take a lump sum or to commence their annuity payments at an earlier age than normal, or other enticements. If your client has not actually been terminated but is evaluating this type of buyout they will definitely need your help, guidance and expertise.

Revisit the Financial Plan

In your meeting or conversation with your client, indicate that you feel this is a good time to review their financial plan. This is true whether your client was terminated or if they are weighing a buyout offer from their employer. This financial planning review should address questions such as:

Where do they stand in terms of their various financial goals, most notably retirement?

How much do they have saved for retirement?

Is this the time to venture out on their own into some sort of self-employment venture?

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What separation benefits, if any, will the client receive from their employer?

What are their current income and cash flow needs? How will they cover these needs?

What will they do for health insurance? If they are married and their spouse is covered by a health insurance plan through their employer, it is probably a fairly simple matter for the client to be added to this plan. Or perhaps their employer offered extended medical coverage as part of the separation agreement.

What are their employment prospects? This, of course, will vary by each client’s situation. With the impact of the COVID-19 pandemic on the economy and on many industries, obtaining new employment may be tougher than in the past. Is it realistic to expect that they will be able to find a new opportunity with compensation and other benefits that will match their prior position?

Depending upon the answers to these and some other questions, you may need to rework the client’s financial plan to account for their new situation. This new plan may reveal a need for them to work longer, scale back their retirement lifestyle expectations, or it may reveal this job loss has no material impact on their situation.

Retirement Accounts

A key element is to ensure that your client makes a proactive decision about any retirement accounts with their former employer.

If they have a 401(k) plan or perhaps a 403(k) plan, a decision needs to be made what to do with this account. One option is to roll the account over to an IRA. Another option is to roll it over to a new employer’s plan if your client goes to work for another employer and they accept these types of rollovers. A third option is to leave the funds in their old employer’s plan if you and the client feel this plan offers superior investments.

If the client’s 401(k) plan contains significant amounts of low basis company stock, you might consider using net unrealized appreciation (NUA) strategy for the stock portion of the account when rolling over their 401(k).

Stock-Based Compensation

If your client had stock-based compensation with their old employer, you will need to review this carefully to ensure that your client derives the maximum benefit possible from this compensation. In the case of stock options there may be a specific time period by which they need to exercise these options. Restricted stock units (RSUs) may have similar deadlines.

A job loss for someone in the 50s can be traumatic. With help and guidance from their financial adviser, they are more likely to achieve the best financial outcome under the circumstances.