What to do when you’re laid off – right as you’re nearing retirement

The last years of your career aren’t something that’s usually associated with uncertainty. In many cases, you’ll have been at the company for years and bring a wealth of knowledge that has earned you status as a senior member of staff.

But often, a senior status comes with a fatter pay cheque. And in the event of a round of layoffs, this might push you towards the top of the list of jobs at risk of being cut. In fact, more than 10% of people over the age of 50 have left the workforce due to a layoff in recent years, according to a study by L&G.

So, what are you supposed to do in these circumstances? You might not be ready to fully retire, and you also may not financially be able to. What options does that leave you?

Assessing your finances

The final working years before retirement can be important for your pension pot. The longer you can keep feeding the pot and delay drawing down the funds, the better. For example, if you have £400,000 in your pension pot, another five years achieving 5% annual return would turn into more than £513,000 before fees. Adding more money to the pot before retirement could further boost your pension.

If you’re under 55 (or 57, come April 2028), you will not yet be able to access your pension. And state pension access won’t begin until age 66 (also set to rise in coming years).

If you are just a few years away from your targeted retirement date, it's worth assessing what being out of work now would mean for your lifestyle. Are you willing to accept fewer holidays? Or give up the car you were planning to purchase? This could be an option depending on how comfortable of a position you are in, and if the prospect of going back to the jobs market doesn’t seem like the right fit.

It’s important to ensure your money will last through your entire retirement. According to the Office for National Statistics, men currently aged 65 are expected to live another near 20 years, while women are expected to live another over 24 years. If you’re retiring in your 50s, this could easily mean 30 years of relying on your pension, unless you have other savings or assets to lean on.

Taking early retirement vs redundancy

If you are made redundant, your company might offer you the choice of early retirement package instead. It’s important to look at your company’s specific policies and to crunch the numbers before you decide what is the best option for you. Redundancy pay is usually tax free up to £30,000, with any excess being subject to income tax.

If you take the early retirement package, you will likely have a lump sum added to your pension. But as only 25% of your pension is tax free, depending on the amounts you are being offered, the option that offers the most money up front may end up being less after taxes.

For example, let’s say you are offered a redundancy package worth £50,000 and you made £125,000 per year at your job. The first £30,000 is usually tax free, so the remaining £20,000 would be subject to income tax.

Considering your career options

If you aren’t quite ready to throw in the towel, or if your finances won't allow you to, it doesn’t necessarily mean you need to aim for a similar position to the one you held before.

There are difficulties associated with being hired further along in your career, but you also come with a unique skillset. A slight shift in your career may allow you to continue earning without struggling in what could be a highly competitive jobs market.

This could include areas like consultancy, which would allow for a more flexible schedule and less commitment on the side of the employer, but still provides a level of income.

Alternatively, you may want to explore a slightly different field within your same career, such as handling finances for a charity instead of a large corporation, or a business in its early stages, which may welcome a bit of experience and expertise.

Keep in mind that if your role is freelance, you won't get pension contributions from your clients. This might not necessarily be a problem at this point in your career, as most of the growth in your pension pot is likely to be coming from the money that is already compounding. However, you could open a SIPP and top up your retirement savings as and when you can with your own contributions.