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    Reader's Question: We’ve been forced to retire! What should we do?

    July 12, 2018

    Reader’s Question:

    After nearly 30 years, my 59-year old wife’s employer laid her off.

    I’m 61, and, because of a car accident, have been on disability since late last year.

    On the good side, we’ve saved almost $400,000 in our retirement accounts, and my wife will still get a pension.

    The bad news is that I went and took out a home equity loan in 2015 to add some upgrades to our land, and now our mortgage is $225,000 (the house and two acres are worth about $425,000).

    We’d both planned to work another 5-7 years, so we’re in a state of shock.

    What would you recommend we do right now to get through this?

    ~Raymond Q

    Scott Hanson:

    First, I want you to know how sorry I am that you’re going through this. I understand that you’re feeling a lot of stress at the moment, but if the numbers you’ve given me are any indication, you have options.

    To be clear, this is an extremely common situation.

    How common?

    Walk out your front door and look up and down your block. I’m sorry to say that this issue will likely visit 60% of the homes you see.[1]

    While that may not make you feel any better right now, the reasons for both of you being out of work are among the most common factors of forced retirements. They are:

    • Health emergencies
    • Company downsizing
    • The need to care for a loved one

    While I don’t know how much (if any) severance your wife received, you said you’re on disability, and I would imagine your wife qualifies for unemployment.

    You also have savings, and, if you’re permanently disabled, you may qualify for Social Security after a year (don’t apply just yet). Plus, your wife’s pension will certainly help.

    So, while shocking, this is not as dire as it may feel. Here are some short-term steps you should take.

    1) Make Sure Your Wife Gets Everything She Deserves

    It’s unfortunate (to say the least) when I meet with someone who was laid off a year or so earlier, and who didn’t get everything from the company that they had coming. For instance, I once met with someone who left over 125 hours of vacation time on the table with a previous employer.

    So, first, your wife must not only demand everything that is legally hers, she must attempt to negotiate to improve the terms of her package. This includes:

    • Maximizing her severance amount (If they offer three months, ask for a year)
    • Get paid for ALL of her unused time off (PTO)
    • Don’t forget her company stock!
    • Extend her health insurance coverage (more on this below)

    2) Cut Your Spending and Consolidate Debt

    Some otherwise financially savvy people just seem to be comfortable carrying credit card debt. (I wish that weren’t the case.) This is addressed in our more comprehensive (and free) Emergency Retirement Guide, but we like to say that money not going out is the same as money coming in.

    Protect your equity and cut your spending by:

    • Consolidating and/or paying off any credit cards
    • Immediately eliminating all excess expenditures (You know the ones.)
    • Consider refinancing to extend your mortgage to lower your payments
    • Do not borrow any additional money on your house (or credit cards)

    3) Don’t Lose Healthcare!

    This is a BIG one. That’s because, for a lot of retirees, healthcare is their largest expense.

    But think of it as an opportunity.

    As big and complex, and as difficult to navigate, as healthcare is, don’t let the maze of choices push you into making a costly (or hasty or uninformed) decision.

    At this critical juncture, mistakes are an unaffordable luxury.

    • Decide now that you will refuse to lose your healthcare coverage (even if it means downsizing your house)
    • Again, negotiate with your wife’s employer for continued benefits (do they offer Retiree Health Insurance?)
    • COBRA is an often-adequate 18-month bridge
    • You’re 61 and on disability, which means you’ll soon qualify for Social Security and possibly Medicare (do NOT apply for these programs until you speak with an advisor)

    Every step of a forced retirement requires planning, but probably no other category offers so much room for error, or penalizes you more severely for innocent mistakes than healthcare.

    Be aggressive, but tread carefully.

    If you’ve never met with one before, if only to make informed decisions about healthcare and Social Security, speak with a credentialed, fiduciary advisor as soon as you can. Sound, educated and unemotional advice is very likely what you most need right now.

    4) Make the Most of Your Wife’s Pension

    You said your wife is due to receive a pension. That is, of course, very good news!

    Without knowing the amount, I do know that the decisions you make pertaining to your pension will impact you and your wife for the rest of your lives. Start by:

    • Knowing the benefit options of your pension (lump sum, survivor benefit, etc.)
    • Know your pension’s funding status
    • Realize that if you are offered, and accept, a lump sum pension payout, you need that money to continue to produce income for you by investing it carefully

    Conclusion

    It appears to me, based on the information you’ve provided here, and, depending on your expectations, along with the decisions you make over the next six months, that there are good options available to you.

    And this doesn’t even take into account the fact that your wife may decide to keep working and find another job.

    It’s complex, to be sure.

    Because even though you have some solid assets, savings and a pension, based on your ages, and if you both are permanently retired, you could be facing the prospect of funding dual 30-year retirements.

    At the risk of sounding repetitive, you need independent, fee based investment and retirement planning advice right now.

    [1] https://www.usatoday.com/story/money/2015/06/02/majority-of-americans-have-to-retire-sooner-than-theyd-planned/28371099/
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