Sudden job loss can derail retirement plans for older workers

October 01, 2006|By Janet Kidd Stewart

There was a time when Conchy Bretos thought she would spend her entire career in government.

Then Bretos lost a 1993 election for a seat on the Dade County Commission in Florida after a nasty campaign. And when she tried to return to her job as executive director of the county's Commission on the Status of Women, Bretos was fired. While her supporters complained bitterly that it was political retribution, she was not reinstated.

She lost her political clout and many of her personal contacts, but Bretos was able to use one of her important contacts to become Florida's assistant secretary for aging and adult services.

Her career shifted again in 1995 when she left government at age 50 to start a consulting business, MIA Consulting Inc., that helps bring assisted-living services to public housing facilities.

Things worked out well for Bretos, but that painful firing rings a familiar bell with thousands of workers who have been thrust out of the work force on something other than their own timetable. When it happens to older workers, it can cripple even the best-laid retirement plans.

And that's exactly the scenario many baby boomers and beyond are heading for, according to a new study by the Center for Retirement Research at Boston College.

Reviewing government data on job terminations, researchers found older people have a lower probability of being laid off than do younger workers. It wasn't age that insulated them, however, but job tenure, said center director Alicia Munnell.

"Today, that's changing," she said.

As more employers remove the so-called golden handcuffs of defined-benefit pension plans, which pay off only at the end of a career, older workers are job hopping more often, Munnell said. And that leaves them as vulnerable to job loss as younger workers, she said.

"When it comes to a layoff, you're more vulnerable with a new employer. And you should probably be looking for a bigger wage premium for moving," Munnell said.

What about workers who don't job hop by choice?

When Bretos lost her job, she had eight years' service under the Florida pension system, two years short of vesting. Her new state job allowed her to resume the pension plan until she became eligible for benefits.

Still, with only 10 years' service, that pension will amount to $1,700 a month at retirement. Rather than sticking around to try to boost that number, Bretos decided she'd be better off striking out on her own.

She's glad she did, and she said MIA is profitable and has a solid retirement plan for her and its roughly 30 workers.

So how would she advise other older workers who find themselves suddenly out of work?

"If you're over 50 and out of a job and disgraced, you really have to depend on a very small group of people," Bretos said.

Forget blanketing the universe after an embarrassing job loss, because you learn very quickly that many people you thought were allies aren't, she said.

It's also important to build on past jobs, Bretos said.

Job loss resulting from a corporate downturn may not require such tactics, but all workers should keep a few financial moves in mind in case of a sudden job loss late in a career.

Beyond the all-important emergency fund, in which advisers say you should stash at least six months' expenses, consider a Roth individual retirement account and home as potential sources of funds, said Stephen Huxley, a decision sciences professor at the University of San Francisco's business school and co-author of Asset Dedication: How to Get Wealthy With the Next Generation of Asset Allocation (McGraw-Hill, $27.95).

The principal on your Roth account can be pulled out tax-free, and home-equity lines (which should be originated while you're employed) typically charge lower interest rates than credit cards.

But every dollar you borrow from your IRA or your home is money you are taking away from retirement, he said, so the real answer is to anticipate career shocks from the beginning and focus on two things: staying as flexible as possible in your job skills and investing in asset classes that will deliver the biggest return over the longest time horizon.

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