Laid off near retirement: a calm plan for the first 30 days

If you've been laid off in your 50s or early 60s, the first job is not to decide your whole future this week. It's to protect three things: your health cover, your access to your savings, and your options. Most of the big choices, like whether this is retirement or a pause, can wait a few weeks.

A layoff near retirement is hard, and it's more common than people say out loud. We wrote this as a calm checklist you can work through one step at a time.

uFIRE is for education only, not financial advice. Severance terms, plan rules and state unemployment rules vary. Check your own paperwork, and talk with your plan administrator, a tax professional or a licensed advisor before making big moves.

Week one: breathe, then gather the paperwork

Before deciding anything, collect what you'll need to decide well:

1. The severance agreement. How much, paid when (lump sum or salary continuation), and whether signing it asks you to give anything up. Many agreements give you time to review; using that time is normal.
2. Your benefits end dates. When does health cover stop? Life and disability insurance? Ask HR for the COBRA notice and any conversion options.
3. Your retirement plan details. Your 401(k) or 403(b) balance, any outstanding plan loan, and whether the plan allows partial withdrawals after you leave.
4. Your last pay stubs and any unvested benefits. Check what vests, what's forfeited, and whether unused vacation is paid out.
5. Your Social Security estimate. A free my Social Security account shows your earnings record and estimates at 62, full retirement age and 70.

Then file for unemployment with your state. Rules and amounts vary by state, and you can usually apply even if you're receiving severance; your state decides how the two interact.

Health cover: COBRA or the marketplace?

This is usually the most urgent decision, because the windows are short.

COBRA keeps the exact plan you had, with the same doctors. That's valuable mid-treatment or if you've already met this year's deductible. The catch is the cost: you now pay the whole premium yourself. You generally have at least 60 days to elect COBRA, and coverage is retroactive once you do (DOL FAQ).

A marketplace plan can't turn you down for health conditions, and with lower income this year your premium tax credit could be larger than you'd expect. In 2026, households generally need income between 100% and 400% of the federal poverty level to qualify for the credit, so a year with a large severance payment can matter (IRS).

Many people price both before choosing. Our health insurance before Medicare guide walks through every option, including a spouse's plan.

Your 401(k): slow down before you roll it over

It's tempting to tidy up and move everything into an IRA right away. If you're 55 or older this year, pause first.

The rule of 55 can let you take withdrawals from the plan of the employer you just left without the 10% additional tax, if you separated from service in or after the calendar year you turned 55. Being laid off counts. Once the money moves to an IRA, that exception is gone for those dollars (IRS).

A few other things to check:

• Plan loans. If you have an outstanding 401(k) loan, leaving the job can turn it into a distribution. The IRS generally gives you until your tax filing deadline, including extensions, to roll over that amount and avoid tax on it (IRS).
• Withdrawals are taxed as income. Rule of 55 or not, traditional 401(k) money is usually taxable when it comes out. Smaller withdrawals spread across years often keep the tax lower.
• Under 55? Other routes exist, like 72(t) payments or Roth contributions you've already made. Our guide to getting to your money before 59½ covers them.

Severance, unemployment and taxes

Severance pay is taxed like wages (IRS Publication 525). A lump sum can push this year's income up, which affects your tax bracket and your marketplace credit. If you have a choice, ask whether it can be paid over time or split across calendar years.

Unemployment benefits are taxable federally too, and you can ask your state to withhold 10% using Form W-4V (IRS Topic 418). Many people prefer that to a surprise in April.

A lower-income year can also be a quiet opportunity. Some people use it for Roth conversions or tax-gain harvesting at a lower rate. It's worth a conversation with a tax professional before December 31.

Is this retirement, or a pause?

You don't have to answer that today. Here's a gentle way to find out:

1. Work out your monthly needs. Start from what you actually spend, then add health cover.
2. Count your runway. Severance, unemployment and your cash cushion: how many months do they cover?
3. Check your FIRE number. The FIRE number calculator and retiring at 55 guide help you see whether your savings could already carry you, maybe with a little part-time income.
4. Look at Social Security timing. Claiming at 62 pays less for life, and if you go back to work before full retirement age, the earnings test can hold some benefits back. Our guide on when to claim Social Security if you stop work early works through it.

Some people find the numbers already work, and the layoff becomes the push they needed. Others take a few months, then find work they like better. Both are good outcomes. If you're still deciding, you might plan the time off as a mini-retirement with an end date, so it feels chosen rather than imposed.

A simple plan for the first 30 days

• Days 1–7: Gather paperwork, file for unemployment, note every deadline (COBRA, marketplace, severance signature).
• Days 8–14: Price COBRA against a marketplace plan. Pick one before your current coverage ends.
• Days 15–21: Leave your 401(k) where it is for now. List your monthly spending and your runway.
• Days 22–30: Run your FIRE number and Social Security estimates. Talk it through with your partner, and book time with a tax or financial professional if the stakes are high.

Common questions

Should I roll over my 401(k) after being laid off?

Not necessarily right away. If you left in or after the year you turned 55, keeping the money in that employer's plan may let you use the rule of 55 to withdraw without the 10% additional tax. An IRA doesn't offer that exception. Check your plan's withdrawal options first.

Can I collect unemployment and severance at the same time?

It depends on your state. Some states reduce or delay unemployment benefits while you receive severance, and others don't. File with your state and let it decide; it's usually better to apply than to assume you can't.

Is COBRA or a marketplace plan cheaper?

It depends on your income, location and health needs. COBRA keeps your plan but you pay the full premium. A marketplace plan may come with a premium tax credit if your income for the year is between 100% and 400% of the federal poverty level. Price both.

Should I claim Social Security early after a layoff?

You can start at 62, but the monthly check is smaller for life, and the earnings test may withhold some benefits if you go back to work before full retirement age. Many people bridge with savings, severance or part-time work and claim later. Your my Social Security estimate is the place to start.

Is severance pay taxable?

Yes. Severance is taxed as wages, and a lump sum can raise this year's income. Ask whether payments can be spread out, and plan for the tax before you spend it.

Next step

See whether your savings could already carry you, or how far away that day is.

Find your FIRE number →