Tap retirement funds until new job offer?


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Dear Liz,
I was laid off last October from a $100,000-a-year position and have yet to find a job. At 56, I’d like to know if I should spend down some of my nonretirement investments rather than take part-time work that pays $9 to $10 an hour. The part-time job would impair my ability to interview for better positions. My retirement accounts are worth about $1.2 million and I have about $400,000 in nonretirement mutual funds and stocks. I hope to retire when I’m 62, but not tap my Social Security (about $2,800 a month) until I’m 70. I have paid off my mortgage and have no other loans or debt. I have some rental income from renting out my basement that varies from $1,200 to $2,000 a month.
— Karen

Dear Karen,
The chances of finding a job that pays as well as your last one aren’t great. Once they lose a job, older workers tend to be unemployed longer than younger workers, according to the AARP Public Policy Institute, and they often must take a substantial pay cut to find a job, according to an Urban Institute report.

You’re in the fortunate position of having significant savings, however, so you can tap retirement funds until a new job offer materializes. If you use the golden rule of sustainable annual withdrawals and take 4 percent of your total portfolio the first year, you would have $64,000 on which to live. A more conservative 3 percent withdrawal rate would leave you with $48,000 your first year. That’s a big cut in pay, yes, but it may be enough for you to live comfortably while you look for either part-time or full-time work that pays better than $10 an hour.

You should be wary of taking larger withdrawals under the hope that you’ll find something soon. The better-paying work may not materialize, and you will have put a major dent in your savings that could dramatically increase your odds of running out of cash in retirement.

As always, consult with a fee-only financial planner before you take that first withdrawal to make sure you’re on a sustainable track for the future.

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