How to handle job loss before retirement4 min read . Updated: 14 Jul 2020, 12:42 PM IST
- Reconsidering goals and expenses can be key to dealing with a job loss, whether due to a layoff or an extraneous circumstance, for older professionals
- A job loss in one’s 50s can mean early retirement, but without the benefit of being financially prepared
The covid-19 pandemic has taken a toll on jobs and livelihoods across the board. For the young, it may be relatively easier to pick up the pieces and move on to the next opportunity in case of a job loss, but things aren’t nearly as smooth for older professionals, especially if they are nearing retirement.
Although there is no clear estimate of how many people close to retirement age have been fired due to covid-related downsizing, a survey by HelpAge India conducted among 5,000 people showed that during the lockdown, 65% of people in the 60-80 age group lost their livelihoods (read here: bit.ly/38kqmpq).
According to Shilpi Johri, certified financial planner and founder of Arthashastra Consulting, since companies are not able to sustain losses, layoffs or forced resignations or leave without pay could be a norm for some time and those nearing retirement might be the first to go. “For such professionals, finding a new job could be difficult in the current economic situation, because a younger workforce is available for less pay," she said.
If you find yourself in such a situation and are facing challenges related to setting up your post-retirement finances, we tell you what you need to do.
Realign your expectations
In most cases, a job loss in one’s 50s can mean early retirement, but without the benefit of being financially prepared. According to Tarun Birani, founder and CEO, TBNG Capital Advisors, taking stock of all your assets and investments is a good place to start as it will let you make informed decisions and reset your goals.
“Review your financial status, including your severance package, reassess your risk profile, and check cash flow projections. Cut down on unnecessary expenses and dip into the emergency fund if need be, and delay access to the retirement fund," he said. If your original retirement plan involved moving or downsizing to curb your expenses, this might be a good time to expedite those plans, he added.
People who have retired but haven’t received the payouts would find themselves in a similar situation. A 60-year-old former professor, who didn’t want to reveal his name, retired from a government college in Mumbai after 35 years, and is living off his savings after retirement. “The payments department held up my pension on technical grounds. I am living off my savings because covid-19 has made alternatives like taking tuitions very difficult," he said. His dilemma is that he still has big expenses like his children’s higher education to tackle.
This might also be a good time to have some difficult conversations with your family to ensure that they recalibrate their expectations. “The financial burden should be shared by other earning members like adult children or siblings," said Johri. If you have children who are planning to pursue higher education, talk to them about taking an education loan. For weddings, find out if your children can partly fund it or cut back on the expenses.
Take stock of investments
Next, re-evaluate your investment portfolio to better align it with your changed circumstances. Many plan to save a significant chunk in the last years before retirement, as their income is likely to be higher than ever. If your income stream is cut off abruptly, think of how to maximize your returns on the retirement corpus.
“Consider the adequacy of your accumulated corpus. Also, look at your asset mix in view of your future requirements and goals. Factor in your risk appetite post-retirement or post-layoff and assess the monthly income you would need," said Sanjeev Govila, a Sebi-registered investment adviser.
Prioritizing goals is also important as there is a major change in the income source, said Pranjal Kamra, CEO, Finology, a financial education and investment platform. “Scale back non-essential goals and expenses but continue SIPs for important goals," said Kamra.
He added that the payouts that come at the end of employment can be utilized to start a cash flow. “You can withdraw Provident Fund without any tax liability and invest a part of it in instruments such as annuities or post office monthly income schemes," he said.
Have a safety net in place
Another thing to keep in mind is that once your employment ends, you will no longer be eligible to avail of any health insurance benefits provided by your employer.
Shukla B, 56, a Kolkata-based bank professional, had failed to consider this. Banks being an essential service, remained open throughout the lockdown period, but she could not go in to work because she is the primary caregiver for her 86-year-old mother. “I couldn’t take the risk of being exposed to the virus and then bringing it home to my old and ailing mother. So I asked for an exception to be made in my case, but was told that was not possible as banks were required to continue business as usual," she said.
She ultimately decided to quit her job four years before she was set to retire. While she has few liabilities to deal with and has adequate retirement savings, one thing she hadn’t accounted for is insurance. “My mother is insured, but now I have no insurance coverage because I thought I would be covered by my employer’s policy," she said. Shukla might have trouble getting insurance for herself at this age, given the strict underwriting.
“Make sure you have adequate health insurance of your own. If you already have one, check if you need to enhance the cover. Buying a top-up policy is a good way to enhance it. Keep in mind that a health emergency at this stage has the potential to wipe off a large part of your corpus," said Govila.
A job loss is always a shock, when you are close to retirement. But while the covid-19-hit economy may not provide too many employment opportunities for older professionals, taking stock of your assets and realigning your financial goals can make the burden a lot easier to bear.