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Imagine getting a note like this:
I’m 63, and last week my company laid me off after 22 years. I wasn’t planning to retire until 67. Should I sign up for Social Security now so we don’t drain our savings? And what about health insurance?
Let’s say it came from a reader we’ll call Dennis. He’s made up, but his situation is realistic, and the first decision he makes could follow him for the rest of his life.
Job hunts also tend to take longer at his age. In 2025, unemployed workers 55 to 64 had been out of work a median of 11.3 weeks, versus 9.9 weeks for all unemployed workers, according to the Bureau of Labor Statistics. (1)
I’ve been a CPA since 1981. Here’s what I’d tell Dennis, in order.
1. Don’t grab Social Security out of panic
For anyone born in 1960 or later, full retirement age is 67. Start at 63 and the Social Security Administration says your check is reduced to 75% of your full benefit. (2)
Say Dennis’s full benefit at 67 would be $2,200 a month. At 63, that’s $1,650, or $550 a month less.
Waiting pays the other way, too. For people born in 1943 or later, benefits rise 8% for each year you delay past full retirement age, until 70. (3)
2. File for unemployment first
Here’s some good news. Social Security says, “Social Security does not count unemployment benefits as earnings. They do not affect retirement benefits.” (4)
The reverse isn’t always true: Social Security income may reduce your unemployment check, depending on your state. (4) To me, that’s one more reason to collect unemployment before you claim Social Security, not at the same time.
Just remember the IRS’s rule: “Unemployment compensation is taxable income.” You can ask the payer to withhold federal tax by submitting Form W-4V. (5)
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3. Line up health insurance within 60 days
This is the deadline that bites. If you lose job-based coverage, HealthCare.gov says to apply for Marketplace coverage within 60 days. (6)
The other option is COBRA, which lets you keep your old employer’s plan for up to 18 months after a layoff. (7) But you usually pay the whole premium, including the share your employer used to cover, plus 2%. (7)
Compare both before you sign anything.
4. Bridge the gap with savings, carefully
If Dennis has a 401(k), he’s past the age when the IRS’s 10% additional tax on early distributions applies, since that generally hits withdrawals before age 59½. (8) But withdrawals from a traditional account are still generally taxable income.
So I’d use savings and unemployment for the first months, then tap retirement accounts in measured amounts. By my read, with the income he’s lost, this year’s tax bracket may be lower than usual, which can make modest withdrawals cheaper.
A decision this big, with this many moving parts, is worth a second opinion.
One option: SmartAsset offers a free matching service that pairs you with up to three fiduciary financial advisors, all legally required to put your interests first. They can help with tax savings, Social Security strategies and planning gaps you might miss, as well as investment advice.
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5. If you go back to work, know the earnings limit
Some people laid off in their 60s look for part-time or remote work. If Dennis claims Social Security early and then earns too much, some of his benefit gets held back.
For 2027, the limit for people under full retirement age is $25,560 a year. Above that, Social Security withholds $1 in benefits for every $2 in earnings. (9) You’ll recoup that money from Social Security, however, when you retire.
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My honest take
Getting laid off at 63 stings, and the instinct is to grab every dollar you can, right now. But Social Security is the one decision on this list you can’t easily undo.
So file for unemployment, fix your health coverage, and give yourself time. If you land another job, you’ll be glad you waited. If you don’t, you can still claim later, and your check will be bigger for it.
Sources: 1. Bureau of Labor Statistics; 2. Social Security Administration; 3. Social Security Administration; 4. Social Security Administration; 5. Internal Revenue Service; 6. HealthCare.gov; 7. U.S. Department of Labor; 8. Internal Revenue Service; 9. Social Security Administration
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