Prepare Now to be Eliminated in Your 50s
One of our major personal finance goals is to save six months of living expenses in order to prepare for an unexpected job loss or a voluntary job change. This is based on an average of six months to find a corporate job in a similar level position.
That’s what “they” say. Unless you have turned 50 years old.
According to ProPublica back in 2018, “Americans who enter their 50s working full-time, long-held positions — the steadiest type of work — report being pushed out of their jobs by their employers.” More than 56% of 2,000 working people in their early 60s who were surveyed by ProPublica lost their career job due to the employer’s decision in their 50s; 19% got to retire by their own choice; 9% quit because of personal reasons; but only 16% were in the same career-defining job by age 60. Even before the appearance of covid in 2020, corporate workers age 50 and older were targeted by corporations to be forced out of their positions that they had attained in a career of 25 years or more. Any of these job elimination methods sound familiar?
Structure reorganization
Position elimination
Early retirement offers
Pension reductions
Transfers or reassignments to lesser or more demanding positions with a pay cut
Raises denied
Unattainable or eliminated bonuses
We won’t go into all of the real reasons for 50s job eliminations here. They range from legitimate company mergers and reorganizations to adjusting to economic downturns, to skyrocketing healthcare insurance costs for older people, to purely cost-cutting greed to line CEO pockets by artificially producing higher profits and driving up share value. Surely not age discrimination.
Regardless, most Christian couples in their 40s are not saving for losing their career jobs in their 50s. They are paying for expensive Christian private universities for their children. In fact, not having a Bridge Account is the hidden pothole, the missing financial goal, in most Christian-based financial literacy programs (full disclosure – including all of the programs that I am certified to teach and support). Do not skip from saving for and paying for college to paying off your home mortgage without having a financial plan for dealing with career change in your 50s.
Flip that scenario. Don’t be burdened with potential job loss fear. Lighten your load by building a Bridge Account to your retirement accounts, leveraging the six-month emergency savings.
The plans of the diligent certainly lead to advantage, But everyone who is in a hurry certainly comes to poverty. - Proverbs 21:5 NASB
How to Build a Bridge Account to Your Advantage
When you turn 40, start building your Bridge Account to help you get from age 50 to age 60. Start in your 30s if you can. The Bridge Account is a taxable investment account outside of a retirement account. This means you will deposit money into to the investment account after it has been payroll taxed. But you will pay taxes on the annual income from interest, dividends, capital gains and sale profits from that account. Some Christians do not want to pay more taxes on investments, so they put all of their investments in a Roth IRA. The problem is, you can’t withdraw that Roth IRA money before age 60 without a substantial penalty, so you end up losing money anyway. Instead, you can withdraw money from the investment account any time without penalty. Contribute to the Bridge Account like you would to a savings account, but watch it like your checking account.
Start the Bridge Account with seed money from your six-month emergency savings:
Open a cash investment brokerage account (your bank may have one that is easy to use, or keep it separate – learn how at Investopedia)
Transfer one to two months of savings cash to the brokerage account
Plan to save the one-two months back into your emergency fund
Buy dividend income ETFs that will pay 5% - 10% annual yield (dividends may be paid monthly or quarterly that add up to the annual yield)
Dividends should be re-invested in buying more of the ETF they came from
Keep 10% of the Bridge Account in cash
Cautions:
Do not invest in ETFs unless you are experienced with buying and selling stocks or funds in your retirement accounts (401k and/or IRA) – you may need to ask a certified financial advisor for help
If you are risk-averse, invest the Bridge Account money in government bonds or CDs that pay at least 5% annual return to keep pace with inflation
Dividend ETF prices fluctuate according to payout dates, so expect some up-and-down movement
Dividend ETF managers can change their dividend yields, and if those yields go down the price will as well as owners sell off
The objective of a Bridge Account with dividend ETFs is to create a revenue stream for you if you lose your job or you want to supplement your monthly income without taking on extra gig work. Here’s an example of how that works.
Building with the Bridge in Mind
You have a six-month emergency savings account with $30,000 in it earning 5% annual interest. You take $10,000 (two months) and put it in a cash brokerage investment account. You invest $2,000 in four different dividend ETFs that will pay 10% annual yield. That means you will earn at least $800 on the $8,000 investment, not counting any ETF price value increase. The other $2,000 is put in a money market account for 5% interest, and used to buy an ETF on a “bargain price.” After a year, you may have $10,900 or more in the Bridge Account, depending on increased value of the ETF prices.
Hopefully, over the course of the year, you have saved back the two months of emergency savings you invested (about $800 per month). If you do this for 10 years, from age 40 to age 50 – add $10,000 saving each year and re-invest the dividends – you could have more than $100,000 in that Bridge Account when you get to the push-out 50s. Then if/when you lose your career job or change careers, your monthly dividend income will be more than $1,000 to help you pay essentials. And if you have to, you can live off that Bridge Account principal money, selling the ETFs as necessary, until you find your next job or create your next job. You can use the Bridge Account to pay for certifications or additional education for your next career.
Poor is one who works with a lazy hand, But the hand of the diligent makes rich. (One) who gathers in summer is (one) who acts wisely, But (one) who sleeps in harvest is (one) who acts shamefully. - Proverbs 10:4-5 (NASB)
The biggest advantage of a fully funded Bridge Account is the financial freedom to leave a job if you have to for any reason. But if you do not diligently start building a bridge in your 40s, when you have a harvest, you could face a huge river to cross in your 50s. You do not want to withdraw retirement funds early at a penalty or use credit cards to live. Start building the Bridge Account today!
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