Early Retirement or Layoff? How to Make the Right Choice

Lucy Lazarony is a seasoned personal finance journalist who began her career in 1998. She specializes in creating clear, straightforward content on credit, debt, budgeting, retirement, and savings strategies.

Being laid off just before retirement can be unsettling. This guide helps you determine whether early retirement is feasible or if returning to work is the smarter move.

Key Insights

• Assess your monthly expenses, emergency fund, income streams, and investments to evaluate if a layoff could lead to early retirement.
• Sufficient savings to cover retirement expenses may make early retirement possible.
• If savings and income sources are limited, seeking new employment and boosting retirement funds is advisable.

Steps to Take After a Layoff

Layoffs are tough at any stage, but especially when retirement is near. Begin by thoroughly reviewing your financial standing.

"Start by evaluating your financial and professional assets. Consider your skillset's marketability and flexibility in your retirement timeline," advises Joseph Boughan, CFP at Parkmount Financial Partners. "Examine your emergency savings, expected retirement income, and living costs."

Understanding your financial landscape will clarify how urgently you need to find new employment.

"This insight helps determine whether you need temporary work, part-time roles, or a new career direction," Boughan explains.

Determining If Early Retirement Is Viable

If you prefer to retire early rather than seek another job, ensure you can financially support this choice.

Consider these factors:

• Calculate your monthly expenses and how you'll cover them without employment.
• Review your emergency savings to see how many months of expenses they cover.
• Identify all income sources such as Social Security, pensions, annuities, or rental income.
• Evaluate your investment portfolio's size and sustainability.

"Assess the safe withdrawal rate from your investments. Early retirement may involve tax implications and penalties, especially if withdrawing from accounts like IRAs or 401(k)s before age 59½," Boughan notes.

With adequate savings, diverse income, and investments, fully retiring early becomes a realistic option.

John Abernethy, CFP at Together Planning, adds, "Calculate how long your funds would last if you stopped working today. Retirement doesn’t have to be perfect—flexibility is key."

Consulting a financial planner for a second opinion can provide valuable guidance.

Navigating Healthcare Before Medicare

If you’re not yet eligible for Medicare, explore alternatives for health coverage.

"Check your state's Affordable Care Act Marketplace. Plans can be comprehensive and affordable, especially if your income qualifies you for subsidies," says Boughan. "Subsidies are income-based and don’t consider net worth, which benefits many early retirees."

Other options include severance health benefits, joining a spouse’s plan, COBRA coverage, or consulting a health insurance broker.

"Severance packages may extend your health insurance until Medicare eligibility," explains Dave Flegal, CFP and founder of Flegal Financial Planning. "Spousal coverage often offers the most affordable option."

COBRA allows continuation of your employer’s health plan but can be costly since you pay both employer and employee premiums. Coverage typically lasts 18 months, with possible extensions.

Health insurance brokers provide access to a wider range of plans, potentially fitting your needs better but sometimes at a higher cost.

Returning to Work After a Layoff

Is rejoining the workforce near retirement age feasible? Opportunities exist, especially as the labor pool shrinks due to retiring baby boomers.

"Though age discrimination exists, experienced professionals remain valuable," says Boughan. "Focus your job search on industries that appreciate reliability and institutional knowledge, and leverage networking."

Maintaining a positive and proactive approach is essential.

Conclusion

A layoff close to retirement can feel overwhelming but also opens new possibilities. By carefully reviewing your savings, investments, and income streams, you can decide if early retirement suits your situation. If finances are limited, reentering the job market and increasing savings may be necessary to secure a comfortable retirement.

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