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.
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.