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Retirement Planning > Saving for Retirement

How to Help Clients Who Lose Jobs in Their 50s

By Roger Wohlner

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What You Need to Know

  • A job loss after 50 can have a dramatic impact on a client’s financial and retirement planning.
  • These clients will need your help and advice to move forward effectively.
  • A full financial planning review is a good starting point in these situations.

Over the years, downsizing among companies has fallen heavily on employees who are 50 or older. These are experienced employees who are often in their peak earning years and are often costlier than their younger colleagues in terms of their benefits. 

Even with widely reported labor shortages across a number of industries, the impact of layoffs in 2021 on older workers, especially women, has still been great. In some cases, employers will offer older workers incentives to leave the company; in other cases, older workers might simply be part of a general downsizing. 

There are a number of financial planning issues for clients who are faced with a job loss in their 50s or beyond. Here’s how advisors can help.

Get Ready to Give Objective Advice

Perhaps the biggest benefit you can provide these clients is to be a detached, third-party professional in helping them through the sometimes difficult financial choices ahead. You probably have built close personal relationships with your clients over the years. However, in a situation like this, they need your objective and professional advice regarding their financial planning issues, even if this leads to some difficult conversations. 

Review Their Financial Plan

This is a critical time for your client to fully understand all financial resources they have to work with. A financial planning review can help clarify your client’s financial picture for them and for you as you advise them at this stressful period of their lives.

There are a number of factors that will help them determine their next steps, and a financial review can help in this decision process. Your review may determine that your client can just retire if they want to, or that they still need to work. Knowing where they stand financially not only helps in making this decision but can provide peace of mind. It can also help with decisions about Social Security and in formulating a retirement distribution strategy. 

As your client decides what’s next, understanding what financial resources they have to work with can help them make key life and financial decisions at this critical juncture. 

Review the Terms of Separation

In some cases, employers may offer employees a buyout or sweetened benefits if they separate voluntarily. These incentives may include continued access to medical coverage, sweetened pension benefits, enhanced severance benefits or other incentives. 

You should analyze these benefits with your client to see if they make leaving attractive. Another consideration: If they are offered a voluntary separation package, they are most likely now on the company’s “list” for future downsizing. If they don’t take this offer, the next time separation may not be voluntary. 

If your client has been terminated, again review all of the financial terms of separation, including severance and health insurance benefits. 

Retirement Plans

Assuming that your client has a defined contribution retirement plan, such as a 401(k) or 403(b), you will want to look at plan assets and determine their best option for this money. This might include: 

  • Rolling the money over into an IRA.
  • Leaving the money in their former employer’s plan if allowed.
  • Rolling the money over to a new employer’s plan if applicable.
  • Taking a full or partial distribution. 

There may be benefits to leaving the money in the former employer’s plan, at least for a few years. If your client is looking to find another job, waiting and rolling this money to a new employer’s plan might be a good idea if they will likely continue working after age 72. This money may then be eligible for deferral from required minimum distributions. 

If your client is covered by a defined benefit pension plan, review their options surrounding taking an annuity or a lump-sum distribution if allowed. Depending upon their age and other financial resources, it may make sense to take annuity payments now if the money is needed. If a lump-sum option is available, this can also be a good option and the payment can be rolled over to an IRA in most cases. 

Net Unrealized Appreciation (NUA) 

Your client might hold company stock inside of their 401(k) plan. There is a technique called net unrealized appreciation (NUA) that allows for the shares of company stock to be distributed to a taxable account while the rest of the assets in the 401(k) account are rolled over to an IRA. Taxes are due on the shares, but there are no penalties for those under age 59 ½. The key benefit is that these shares are taxed on the client’s basis in the shares, not the current market value. This can be huge for shares that are highly appreciated.  

If the shares are held for a year and then sold, the gains will be taxed at preferable long-term capital gains rates versus the client’s ordinary income tax rate if the shares had been rolled to an IRA and were part of future distributions.   

Stock-Based Compensation

If your client has been granted stock options or other compensation tied to their employer’s stock, it’s important to help your client develop a plan for these shares. Stock compensation might be in the form of stock options, restricted stock units (RSUs) or other forms. 

In the case of options, they might have incentive stock options (ISOs) or nonqualified options (NSOs). In both cases there are rules regarding when the options can be exercised and a host of other considerations. RSUs and other forms of stock-based compensation have their own sets of rules. 

If your client has any of these stock compensation vehicles, they will need your help in determining if and when to exercise them to maximize their benefit.   

Health Insurance

One of the key issues for folks in the 50s or older who lose their job is health insurance. If they are eligible for Medicare, that may be their best option. If they are too young, there are options you can help them work through. 

If they are married and their spouse is covered by health insurance at work, they can generally be added to that plan. Another option might be to sign up for COBRA coverage from their old employer. This is a continuation of their old health insurance coverage for up to 36 months. The downside of COBRA is that it is expensive. But if it is just for a short time, as a bridge until Medicare if they are close to age 65 or to another employment situation, this may be a good route to go. 

If your client finds another job, they will likely be able to obtain coverage through their new employer. However, if they decide to retire or venture out into self-employment, they will need to find coverage either privately or through the health care marketplace. 

This is an important issue on which clients may well look to you for advice and assistance. The high cost of health care can put a dent in their retirement plans if not dealt with effectively. 

What’s Next?

Whatever is next for your client in terms of their life and career plans, they will need your financial planning advice. A job loss at age 50 or older is a traumatic experience, especially if your client had planned to work for a number of additional years. 

Your financial planning advice and counsel will be key to helping them get through this period and move forward financially. 

(Photo: Shutterstock)

Roger Wohlner

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