Written by: Cameron Hendricks
Over the past few years IBM , Lenovo , NetApp , Cisco , BASF and GSK among others have announced layoffs for employees in The Research Triangle Park (RTP).
While being laid off at any age or stage in your career can come as a shock, getting laid off while in your 50s with retirement plans in sight, can completely overhaul your financial plan.
Considerations if this happens to you:
Employer Benefits
Severance/Pro-Rated Bonus/Vacation or sick leave pay out – Many of these will be paid to you right away, but you may have the option to spread out the severance payment over separate tax years. This way you can max out the 12% tax bracket for example instead of moving to the 22% and higher brackets with a onetime lump sum severance. Stock Options – Under this involuntary termination, your stock options may become 100% exercisable or vest on your termination date. This will of course help with income, but will also increase your taxable income. 401k Loan – 401k loans typically are required to be paid in full upon termination. If not repaid, then the loan is treated as a distribution which is taxable Health Insurance – Review your health insurance options from your employer. COBRA coverage or even employer retiree medical may be an option until you are eligible for Medicare Life Insurance – Depending on your family situation and future income producing years, you may need to obtain private life insurance if your employer group plan lapse upon termination.
Where will extra income come from?
When the severance runs out or isn’t enough to sustain your lifestyle, where will income come from?
What resources do you have? If taxable accounts are available then you can sell positions to provide cash. You will be taxed on capital gains/dividends, but depending on your tax bracket you may be able to realize capital gains at 0%. HELOC – At this stage in your career, you likely have substantial equity built up in your home that could be an option to cover expenses. This is especially true if all of your financial savings are tied up in tax deferred vehicles such as 401ks. Also, if you had previously been cash-flowing college costs for your children, either utilizing the home equity or exploring student loan options may be necessary. If you are over the age of 55 you can pull from your 401k without penalty upon termination. This will cause taxable income however, so be sure to have a good grasp on your tax planning before utilizing this option.
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Gap Year/Retirement Trial Run
Use this time as a practice or mini-retirement to help you determine what you want your future retirement to look like. This way you can determine if you want to permanently retire for good, work part-time, or start a new career all together. Either way this is an opportunity to travel and spend time with loved ones if resources allow.
New Employment
Entrepreneurship – Depending on your financial resources, the need for employment at your previous income level may not be necessary. This opens the door for pursing a business venture that you may have always dreamed of. Consulting – The company that just laid you off, may be willing to have you come in as a consultant after a set period of time. Use your familiarity with the company as an asset to provide your expertise just under a different pay structure. These opportunities are often project based, so may only provide temporary income. If not with your previous company, you may have to go this route with an industry competitor, but income could be higher and the range of project opportunities widens.
As you can tell, you may feel in flux during this time as income is coming from a variety of sources while you mull over future plans. This is a great time to sit down and create a financial plan to help get you through this period to the next phase of your career or life.
