The axe has fallen - advice requested on unintended / forced "retirement"

[cathy63]

Cathy, can the OP sidestep this proportional withdrawal thing by rolling over their Roth 401k into their current Roth IRA? And then just withdraw from the traditional 401k penalty free using the rule of 55 to manage their taxable income and withdraw contributions to the Roth IRA for tax free income?

I think the plan docs can control whether a participant is allowed to rollover only the Roth part of a 401(k) or not. And actually, now that I'm thinking about it more, the pro-rata traditional vs Roth withdrawal rule may also have been specific to DH's 401(k) plan. We ended up rolling over his entire account with some funds going into a traditional IRA and some into a Roth IRA so we could gain more control over withdrawals.

Also, if a plan prohibits partial withdrawals then you can't use the rule of 55. So OP really needs to read their plan docs and find out what's allowed in their specific case.

 

[NomDeER]

It seems like it would make more sense to withdraw from the traditional 401(k) later when the OP is in a lower tax bracket and might need a limited amount of income to qualify for the ACA.

Depending on the numbers, there may be a question of how they can get adequate taxable income before 59.5?

Our income in 2027 would likely be very low, which should help us qualify for subsidized Silver plans.

Will your taxable income be high enough? Where is the taxable income coming from, especially if you are thinking about liquidating your traditional 401(k) this year? Is it the small pension you mention or part-time retail work?

Make sure you understand what the both the lower and upper income limits will be in your state if you want to get your health insurance from the ACA (and not Medicaid) and if you want subsidies.

 

[Aerides]

I'm not so sure of the wisdom of liquidating the 401k and creating a big tax bill to pay off the mortgage. In 2027 when you have no earnings or modest side gig earnings you could make 401k withdrawals at no or low tax cost and use that money to make the mortgage payments and/or mortgage balance paydowns.

Agree with this. And since severance runs thru EOY, OP may not be considered as having left the company (on paper) until 2027 anyway, which I believe is required for the rule of 55.

When I was on severance, I was still considered an employee on paper.

 

[Ronstar]

I’d recommend getting advice from a cpa or financial advisor familiar with your set of circumstances. And sit back, relax, and enjoy your retirement.

 

[Surewhitey]

The only thing not mentioned specifically is Cal income tax (10+%) on top of the 24+%. I'm probably conservative since I'm assuming a few things. Please don't penalize yourself just to pay off your home...

You have plenty of time to learn and take baby steps. Pretty sure you are more than fine.

 

[zl55lz]

Thank you, everyone, for the feedback.

We no longer have a taxable brokerage account, as we liquidated it for the down payment on the home we now live in. Between the mortgage, property taxes, trying to max out the Roth 401(k), and paying tuition and housing costs for our older child attending a university several hundred miles away, it has been very difficult to save much each month.

As a result, we currently only have about five months’ worth of expenses in a savings account earning 3% interest.

To say I am terrified would be an understatement.

I realize now that the mortgage is a huge drag on our finances. To add insult to injury, home prices in our area have dropped, and we would probably be lucky just to break even if we sold.

At this point, I honestly do not know what my next steps should be. I also wish I had not simply assumed I would remain employed until age 60, because that had essentially been “the plan". That "plan" - in hindsight - is worse than no plan at all.

Sorry if I missed it in other replies, but when your disabled child attains age 18, check with Social Security (SSA) about a program called SSI (Supplemental Security Income). Once 18, your income and assets should no longer count against them for purposes of eligibility. Also, of course, inquire about Disabled Adult Child benefits for your child off your Social Security when the time comes. SSA can explain the details about both programs.

 

[mystang52]

Something to consider doing:

I think you're feeling a bit overwhelmed and helpless right now. I would suggest "doing something" pro-active. It doesn't have to be big.

Example:

Begin immediately to cut expenses - especially those that don't really cut into your "needs." So, for instance, how much do your family's cell phones cost you? DW and I have calculated that, including amortizing the cost of eventually replacing our cheap Androids PLUS our plan for 2 phones, we pay less than $60/month, all-in, for our ability to each carry a cell phone (we use Consumer Cellular).

Ditch all but one streaming service (or all of them if you really don't utilize what you have). Drop any premium channels on your Cable.

Do the simple stuff like turn out the lights, set the thermostat for day/night, etc.

Cut back on trips in the car - make a list and do a Round Robbin when you run errands (You're gonna have extra time since you're not gonna be w*rking - so make use of the time and save the miles/gas).

Maybe get rid of one car? DW and I did this. Our cars were old, so it didn't cut car payments. But Tags, Insurance and upkeep saved us probably $2K/year (not much - but it adds up).

Skip this year's vacation(s) and do home maintenance instead.

Any monthly expenses - see if they can be cut or eliminated.

Anything you hire done now (yard, pool, pest-control, etc.) Do it
yourself.




Okay, is this going to save you a lot of money. Maybe not, but now you are taking control. Your situation no longer controls you - you control it. There is power in that!! Take the power and feel good that you have taken the power. I think your feelings of being overwhelmed and powerless will abate. You will see that you have the power to get through this transition.

All the best. Please keep posting and let us know your progress as you transition. We are here for you.

Blanche - I strongly urge you to heed the suggestions from Koolau (post # 15). They are easy to do, practical, instantly reduce your expenses, and as he pointed out it gives you a good emotional sense of control.

 

[pb4uski]

Agree with this. And since severance runs thru EOY, OP may not be considered as having left the company (on paper) until 2027 anyway, which I believe is required for the rule of 55.

When I was on severance, I was still considered an employee on paper.

Good point and something the OP should check before taking action to avoid the 10%' early withdrawal penalty in addition to the tax bite.

 

[pb4uski]

It seems like it would make more sense to withdraw from the traditional 401(k) later when the OP is in a lower tax bracket and might need a limited amount of income to qualify for the ACA. ...

And to avoid being pushed into Medicaid.

 

[pb4uski]

I think the plan docs can control whether a participant is allowed to rollover only the Roth part of a 401(k) or not. And actually, now that I'm thinking about it more, the pro-rata traditional vs Roth withdrawal rule may also have been specific to DH's 401(k) plan. We ended up rolling over his entire account with some funds going into a traditional IRA and some into a Roth IRA so we could gain more control over withdrawals.

Also, if a plan prohibits partial withdrawals then you can't use the rule of 55. So OP really needs to read their plan docs and find out what's allowed in their specific case.

Luckily the OP has until the end of the year to plan it out. No need to hurry, especially since some moves are irrevocable.

 

[EastWest Gal]

The only thing not mentioned specifically is Cal income tax (10+%) on top of the 24+%. I'm probably conservative since I'm assuming a few things. Please don't penalize yourself just to pay off your home...

You have plenty of time to learn and take baby steps. Pretty sure you are more than fine.

California income tax is structured like federal income tax, based on brackets. The 10+% marginal tax only kicks in once income is above $742, 958. And the 24% marginal tax only kicks in once AGI is over $206,701. I have a feeling that doesn't apply to OP's situation.

Also, according to original post, OPs Roth 401K, Roth IRA and 401K total 28x annual expenses. Is that a typo? If not, then the 4% rule applies and you could be ok. You can tap your Roth IRA if needed starting in 2027. And perhaps look for some other work if you need to. You're getting paid through the end of the year, and you'll have time to look.

 

[Surewhitey]

California income tax is structured like federal income tax, based on brackets. The 10+% marginal tax only kicks in once income is above $742, 958. And the 24% marginal tax only kicks in once AGI is over $206,701. I have a feeling that doesn't apply to OP's situation.

Also, according to original post, OPs Roth 401K, Roth IRA and 401K total 28x annual expenses. Is that a typo? If not, then the 4% rule applies and you could be ok. You can tap your Roth IRA if needed starting in 2027. And perhaps look for some other work if you need to. You're getting paid through the end of the year, and you'll have time to look.

OK, splitting hairs... 9.3% over $99k in Cali. We lived there back in the day & taxes are rediculous.

Conservatively he's likely in the 22% fed is my guess... We really don't know so all is a WAG.

 

[gauss]

Something to consider doing:

I think you're feeling a bit overwhelmed and helpless right now. I would suggest "doing something" pro-active. It doesn't have to be big.

Example:

Begin immediately to cut expenses - especially those that don't really cut into your "needs." So, for instance, how much do your family's cell phones cost you? DW and I have calculated that, including amortizing the cost of eventually replacing our cheap Androids PLUS our plan for 2 phones, we pay less than $60/month, all-in, for our ability to each carry a cell phone (we use Consumer Cellular).

I'll take that to the next level.

If you are going to change cell phone plans, note that DW and I have tello.com (a MVNO for T-mobile).

We pay $6/month per line. This includes 2 GB of data per line. Additional data I think what works out to be about $1/GB avg. IF I remember to manually renew each month before the next month's auto-charge then the unused data rolls over and accumulates.

I learned recently that I can buy international roaming data a la carte for $10/gb.

Caveats - There is no in-store commissioned salesperson (but there is domestic phone and online support - and I have to buy my own phones ( $100-$200 each) every 5 years or so - when I choose.

Note that we do pay separately for Internet in our home. If I was trying to use cellular exclusively for my Internet then the dynamic would change.

-gauss

 

[bonvoyage]

The one thing that's somewhat under your control is your expenses. You should have at least 5 years of expenses recorded and categorized (for example with Quicken). You should identify three high-level categories so that you get a better understanding of how much flexibility you have in your expenses:
- Predictable regular expenses (utilities, food, property taxes etc)
- Irregular expenses (new car, home repairs etc)
- Discretionary expenses (travel, hobbies)

 

[RetiredAndLovingIt]

I'll take that to the next level.

If you are going to change cell phone plans, note that DW and I have tello.com (a MVNO for T-mobile).

We pay $6/month per line. This includes 2 GB of data per line. Additional data I think what works out to be about $1/GB avg. IF I remember to manually renew each month before the next month's auto-charge then the unused data rolls over and accumulates.

I learned recently that I can buy international roaming data a la carte for $10/gb.

Caveats - There is no in-store commissioned salesperson (but there is domestic phone and online support - and I have to buy my own phones ( $100-$200 each) every 5 years or so - when I choose.

Note that we do pay separately for Internet in our home. If I was trying to use cellular exclusively for my Internet then the dynamic would change.

-gaus

I'll take that to the next level.

If you are going to change cell phone plans, note that DW and I have tello.com (a MVNO for T-mobile).

We pay $6/month per line. This includes 2 GB of data per line. Additional data I think what works out to be about $1/GB avg. IF I remember to manually renew each month before the next month's auto-charge then the unused data rolls over and accumulates.

I learned recently that I can buy international roaming data a la carte for $10/gb.

Caveats - There is no in-store commissioned salesperson (but there is domestic phone and online support - and I have to buy my own phones ( $100-$200 each) every 5 years or so - when I choose.

Note that we do pay separately for Internet in our home. If I was trying to use cellular exclusively for my Internet then the dynamic would change.

-gauss

I'm with Tello as well and have been for 9 years now and also highly recommend it.

Currently on the $8 2GB, 300 minutes and unlimited texts plan since I rarely make calls but with my rollover I have 46GB and 2054 minutes available to me right now. They use T-Mobile towers so if their service is good in the OP's area I'm sure she'd realize quite a savings on her cell bill and plan levels be charged anytime dependent on her needs. Even their unlimited plan is only $25 a month

$10 a GB for international roaming is way too expensive in my opinion though.

 

[floss187]

Just a comment on working retail -- Why?
it's a horrible job!

you have a year+ to find something else. if you're not ready to fully retire, go interview! Consult, take some 3-6 month gigs, keep the income flowing.

start a business. Find a highschool kid/18 year old who wants to mow lawns but can't buy equipment. by a trailer and a mower and take 30%

lots of options if retirement doesn't seem like the best idea.

I would say sell the cali house, buy elsewhere where there's good medical and you'll be without a mortgage and without paying out of the 401k.

 

[Route246]

Just a comment on working retail -- Why?
it's a horrible job!

you have a year+ to find something else. if you're not ready to fully retire, go interview! Consult, take some 3-6 month gigs, keep the income flowing.

start a business. Find a highschool kid/18 year old who wants to mow lawns but can't buy equipment. by a trailer and a mower and take 30%

lots of options if retirement doesn't seem like the best idea.

I would say sell the cali house, buy elsewhere where there's good medical and you'll be without a mortgage and without paying out of the 401k.

Minimum wage in CA is $16.90 and for fast food is $20 at national chains. OP did not say if there are reemployment restrictions, I did not see any job description or job skills so it is difficult to add much. Anyone with technical skills can find contracting gigs and usually very quickly. That said, with that kind of severance and benefits continuity the best approach is to make seeking reemployment a full time job if that is what is desired.

 

[Koolau]

I'll take that to the next level.

If you are going to change cell phone plans, note that DW and I have tello.com (a MVNO for T-mobile).

We pay $6/month per line. This includes 2 GB of data per line. Additional data I think what works out to be about $1/GB avg. IF I remember to manually renew each month before the next month's auto-charge then the unused data rolls over and accumulates.

I learned recently that I can buy international roaming data a la carte for $10/gb.

Caveats - There is no in-store commissioned salesperson (but there is domestic phone and online support - and I have to buy my own phones ( $100-$200 each) every 5 years or so - when I choose.

Note that we do pay separately for Internet in our home. If I was trying to use cellular exclusively for my Internet then the dynamic would change.

-gauss

That sounds like a great plan!

IOW there ARE ways to cut back that don't really reduce utility. My suggestion was to take control of expenses and to be aware of money-wasters that can easily be gotten rid of. That way, you know that you are in charge and your life is yours to run as you see fit. It's a great confidence booster when you know that you are in control.

 

[Gumby]

Review every "subscription" expense. There are probably some things you don't use/enjoy as much as when you first signed up, but inertia has taken over and you just continue to have the auto-deduct taken from your account/credit card every month.

 

[jw72]

I'm sorry to hear that you were laid off. I know you had planned to continue working until age 60. There have been a lot of great suggestions from this group, but one thing that hasn't been mentioned—and stands out to me—is finding another job. While it may not be the ideal solution, returning to work could help bridge the gap and provide financial stability as you move toward your long-term retirement goals.

 

[TripleLindy]

Personally, I’d skip the internet financial advice and go to an expert, as someone else suggested. You’re already experiencing some anxiety and trying to wade through the various opinions, perhaps without understanding them and not knowing if they are even accurate, will probably just add to that anxiety.

Second, as suggested by @Koolau, take control of your expenses. This is absolutely a DIY activity and probably cathartic in nature. Expenses are just as important in retirement as savings/income. You’re in much better shape than most.

 

[NomDeER]

There have been a lot of great suggestions from this group, but one thing that hasn't been mentioned—and stands out to me—is finding another job. While it may not be the ideal solution, returning to work could help bridge the gap and provide financial stability as you move toward your long-term retirement goals.

The OP mentioned getting a job, but it sounds like they are not expecting to get a great paying job. Depending on the specifics of the situation, it can sometimes be difficult to get a job at 55 that pays as much as your last job. Not impossible, though.

 

[Uplooking]

OS, I was a CPA for 35 years and I can tell you that most CPAs are not equipped to do this sort of analysis. The vast majority are audit or tax. While I'm not sure that the OP needs the professional help that you recommend, if they do, they need to look for a CPA with a PFS (Personal Financial Specialist). They are few and far between as audit and tax are more lucrative.

Pb4 - good point on finding the right type of CPA. I wouldn't have known to think that through either.

@Blanche do you have access to trustworthy personal financial and retirement tools/programs? Several have fee only advisors to consult with to plan out your next moves and not just react to the event.

I was let go at a similar stage in life (2008 with 2 children in college but w/o the medical load) but w/o the safety net you have available - panic and dark mental state are not your friends at this time - and yet the next 15 or so years I w*rked turned out remarkably well. So, as others have posted, seek good advice and don't lift this burden alone!

Good fortune in determining your next - what ever it is!

 

[Global Wizzo]

So yesterday (May 15, 2026), five of my teammates and I had the dreaded “10 minutes with HR” meeting. The axe finally fell. While I knew this was probably coming, I was still caught off guard because I expected it to happen in late summer or early fall. Apparently not. HA!

Here are the particulars:

• 2 months of wages in lieu of WARN notice
• Severance pay (paid bi-weekly) through December 31, 2026
• Employer-paid healthcare through July 15, 2027 (the one-year anniversary of termination)

Family situation:

• Me and spouse: ages 55 and 53
• One young adult child (21)
• One disabled minor child (17, turning 18 in May 2027) currently on Medi-Cal

Finances:

Our current annual expenses include the mortgage (5.5%) and property taxes, but do NOT include healthcare, since that has been fully employer-funded.

Assets:

• Traditional 401(k): approximately 5x annual expenses
• Roth 401(k): approximately 3x annual expenses
• Roth IRA: approximately 20x annual expenses

“Income” (using quotes intentionally): We receive “Difficulty of Care” Medicaid waiver payments for our disabled child. Those payments would cover roughly 0.6x of our bare-bones annual expenses (not including health insurance premiums).

Apparently, Covered California does NOT count these waiver payments as income, which could be hugely beneficial for us. However, the waiver payments alone would still leave about a 0.4x gap between income and expenses, even living extremely lean.

Here’s the plan I’m considering, and where I’d appreciate advice:

Since I am 55 this year, I would owe no early withdrawal penalty on any 401K withdrawals. So If I liquidate my current 401(k) by December 2026, even after taxes withheld by the brokerage, it should be enough to completely pay off the mortgage.

Once the mortgage is gone, the waiver payments would reduce our remaining spending gap to roughly 0.2x annual expenses. My intention would then be to fill that smaller gap with whatever work I can get, including retail or big-box jobs if necessary.

Since Covered California apparently looks at current-year income, it seems like taking the large tax hit in 2026 could make sense. Our income in 2027 would likely be very low, which should help us qualify for subsidized Silver plans. Paying off the mortgage would also significantly reduce our required monthly expenses.

I understand the argument that I’d be giving up potential long-term market growth (maybe 7–8%) in order to pay off a 5.5% mortgage. But given our circumstances, my priority is stability; staying housed and making sure my chronically ill spouse’s medical needs are covered without going bankrupt before we eventually qualify for Medicare, Social Security, and my relatively small pension.

Am I missing anything major here? Am I misunderstanding anything? Your feedback / advise is much appreciated. Thank you!

Unless there is a reason to take the grad bite in one year, I’d pull enough out to keep my bracket as low as possible and make the payments for the year. If you have to, you can always pay it off in the future by pulling the pay off amount out.

You may make enough each year to cover the interest costs. I’d also go after traditional first. Touch the Roth last.

 

[msanniee]

So yesterday (May 15, 2026), five of my teammates and I had the dreaded “10 minutes with HR” meeting. The axe finally fell. While I knew this was probably coming, I was still caught off guard because I expected it to happen in late summer or early fall. Apparently not. HA!

Here are the particulars:

• 2 months of wages in lieu of WARN notice
• Severance pay (paid bi-weekly) through December 31, 2026
• Employer-paid healthcare through July 15, 2027 (the one-year anniversary of termination)

Family situation:

• Me and spouse: ages 55 and 53
• One young adult child (21)
• One disabled minor child (17, turning 18 in May 2027) currently on Medi-Cal

Finances:

Our current annual expenses include the mortgage (5.5%) and property taxes, but do NOT include healthcare, since that has been fully employer-funded.

Assets:

• Traditional 401(k): approximately 5x annual expenses
• Roth 401(k): approximately 3x annual expenses
• Roth IRA: approximately 20x annual expenses

“Income” (using quotes intentionally): We receive “Difficulty of Care” Medicaid waiver payments for our disabled child. Those payments would cover roughly 0.6x of our bare-bones annual expenses (not including health insurance premiums).

Apparently, Covered California does NOT count these waiver payments as income, which could be hugely beneficial for us. However, the waiver payments alone would still leave about a 0.4x gap between income and expenses, even living extremely lean.

Here’s the plan I’m considering, and where I’d appreciate advice:

Since I am 55 this year, I would owe no early withdrawal penalty on any 401K withdrawals. So If I liquidate my current 401(k) by December 2026, even after taxes withheld by the brokerage, it should be enough to completely pay off the mortgage.

Once the mortgage is gone, the waiver payments would reduce our remaining spending gap to roughly 0.2x annual expenses. My intention would then be to fill that smaller gap with whatever work I can get, including retail or big-box jobs if necessary.

Since Covered California apparently looks at current-year income, it seems like taking the large tax hit in 2026 could make sense. Our income in 2027 would likely be very low, which should help us qualify for subsidized Silver plans. Paying off the mortgage would also significantly reduce our required monthly expenses.

I understand the argument that I’d be giving up potential long-term market growth (maybe 7–8%) in order to pay off a 5.5% mortgage. But given our circumstances, my priority is stability; staying housed and making sure my chronically ill spouse’s medical needs are covered without going bankrupt before we eventually qualify for Medicare, Social Security, and my relatively small pension.

Am I missing anything major here? Am I misunderstanding anything? Your feedback / advise is much appreciated. Thank you!

Asking you to wave your rights under the WARN Act is a bit sus. What would you be forgoing? Does your severance include the two month’s salary? Or is it severance for X month’s salary PLUS two month’s salary for agreeing to wave your rights under the WARN Act paid through the end of December?