I was fired from my job just 1 year before I was set to retire at 70. What happens to my retirement plan now?

Illegal reasons for firing an employee include discrimination based on factors like age and ethnicity, retaliating against employees for exercising their legal rights or being a whistleblower reporting unsafe or illegal work practices, or because of a medical condition.

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While there are no state or federal laws making severance pay mandatory, it is usually customary for salaried employees, and the size may depend on your position and how long you've been at the company. Whether you should negotiate for more depends on your unique circumstances, and you should carefully read the severance agreement before you sign it. Also consider speaking to an expert.

"If you are terminated, it is important for you to go back and re-read your initial offer letter and employment contract," says Gardner Employment Law, adding that the terms of separation could be useful when negotiating for your severance agreement. "Inclusion of hard to understand legal jargon in the terms of your severance package may be a tactic used by your employers to get you to sign an inadequate severance agreement.You may have been wrongfully terminated or a victim of discrimination harassment, and an employment expert could help you get compensated for your employer’s wrongdoing."

What happens to your 401(k) and Social Security?

Your contributions to your 401(k) plan are yours, even if you are fired. Since Brian has been with his company for many years, he is likely fully vested in the program, and therefore also owns his full share of his employer’s contributions.

"When you retire, you can leave your 401(k) in the current plan, roll it over into an IRA or take a lump sum distribution," explains BlackRock. "Each option has benefits and drawbacks, so evaluate your financial situation and goals. Consider fees, investment options and liquidity needs. Understanding tax implications is crucial, and consulting a financial advisor can help you minimize your tax burden and comply with IRS rules, such as required minimum distributions (RMDs) starting at age 73."

Brian can apply for Social Security right away and receive more than his full retirement benefit amount since at 69 he is older than his full retirement age. However, he would be able to maximize his monthly benefit by waiting until age 70 to claim Social Security.

"Our research indicates that waiting until age 70 to claim Social Security can boost benefit checks by 24% compared to claiming at full retirement age for those born in 1960 or later," said J.P. Morgan in the press release for its Retirement Insights Report. "On the other hand, starting benefits early at age 62 means receiving only 70% of the full retirement amount, resulting in a permanent reduction. It's crucial to understand the benefits and tradeoffs of claiming decisions."

You can calculate your projected Social Security benefit on the government website by creating an account.

Since Brian is so near retiring, he may elect not to apply for unemployment. However, he would be eligible provided his termination was without cause. He should be aware, however, that any severance he collects counts as income, and may impact the payout he receives from the federal program.

Deciding what to do next

Unfortunately, getting fired when you’re close to retirement is fairly common. A study from ProPublica and the Urban Institute found that 28% of stable, longtime employees sustain at least one damaging layoff by their employers between turning 50 and leaving work for retirement.

Brian may well decide to hang up his work tools, even if it’s a decision that carries negative emotions. His primary concern after making his financial arrangements should be to take care of his health insurance coverage, whether he opts for Medicare or a private insurer. He may also choose to find part-time work to keep himself busy and bring in extra income.

With a solid retirement fund in place Brian can feel easy in his mind about his future financial security. If you are fired without a solid base of savings to rely on, be sure to speak to a financial advisor to help you understand your options for retirement or to plan how to return to work.