The shock of an unexpected layoff, especially from a high-paying corporate role, can quickly transform a long-term retirement plan into a financial crisis.
For one Reddit user facing this situation, the challenge is not just the loss of income but an eight-year gap between needing money to live on and being able to access their primary retirement savings.
The dilemma centers on $1.2 million locked in the user's 401(k) for the next eight years, compounded by the spouse's $600,000 401(k) being locked even longer.
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This leaves the couple depending on a $1.2 million non-tax-advantaged account, currently held in mostly equities, to bridge the financial gap.
"What do you think of this plan: Put her 401(k) in a [target date fund] for 2040, mine in a TDF for 2035, and shift the entire taxable account to income now?" he asked the Reddit community. Then we live on the taxable account for the next 8 years, then I can access my 401(k), then we can access hers 4 years after that."
While the plan makes sense from a risk standpoint, the immediate reaction from the community was simple: Are you sure you have to retire right now?
"I feel like you're dismissing just getting another job way too fast," one user wrote.
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But the original poster said he plans to get a lower-paying job and wants to know more specifically about the financial plan he outlined.
Another noted that more information is needed for anyone to provide real advice, but offered this: "Stay invested and draw down as necessary. Target date funds are fine but typically underperform the market. I'm not sure why you need to bucket everything, just pull from your non tax advantages [sic] funds as needed and keep everything else as is?"
Target date funds are one of the most straightforward ways to save for retirement. Think of it as an autopilot investment for a long-term goal.
Target date funds typically consist of a single mutual fund that holds a mix of other investments, primarily stocks and bonds, according to the Financial Industry Regulatory Authority.
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When you're young and retirement is far off, you can handle more risk for potentially higher growth, so the fund is weighted toward stocks. As the target year gets closer, the fund's investment mix is automatically and gradually adjusted to become more conservative.
When you reach the end, the fund shifts from stocks to a higher percentage of bonds and other lower-risk investments.
The original poster's situation illustrates how an unexpected layoff can flip the script from saving for the future to how to live on what they have right now.
It's not that they don't have money; it's that they have a liquidity crunch.
While a TDF can help in the long term, getting a job — no matter if it doesn't pay well — will help shrink the financial gap and take the pressure off.
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