You plan AND plan AND plan for retirement. But what happens when it takes you by surprise?
More Likely Than You Think
Voya Financial says that for some 60% of retirees, the timing of their retirement was unexpected. The Employee Benefits Research Institute reports that about half of all workers retire sooner than expected due to health issues, the need to care for a family member, elimination of their job, or the fact that they don’t have the types of skills needed by their employer.
You need to be prepared for the real possibility that retirement will come sooner than you had planned or expected. Whatever the reason, the best way to deal with an unexpected early retirement is by being as prepared as possible.
Keep Your Emotions in Check
While this may be easier said than done, you need to deal with this unwanted and unexpected situation in a rational fashion. Depending upon the specific reason for this unplanned retirement, you may experience a wide range of emotions including sadness, regret, and anger among many others. This is totally understandable. Don't forget to pay attention to your physical health as well. Plenty of sleep, a healthy diet, and regular exercise can help combat the stress.
Review Your Situation and Come Up with a Plan
The best route is to look at your level of preparedness for this situation. Do you have enough saved to just go ahead and retire? What are your prospects for work? Maybe you look at unexpected retirement as a gift — as a chance do something you always wanted to do...an encore career!
Examine the Budget
Evaluate which expenses are absolutely necessary and which are not as critical. If you find that your financial resources fall short of being able to support your lifestyle, this might be a good opportunity to cut back. Start with the cable bill.
Other expenses probably destroying your budget are cell phones, dining out, gym memberships, and entertainment.
Try Not to Raid Your Retirement Savings
It's tempting to look at that 401(k) plan you built over the years as a nice cash cushion while you get back on your feet. However, this could sabotage your retirement all together. Consider whether you can cover your essential costs by reallocating your emergency funds before cashing out any pensions or other retirement plans. You should carefully consider the consequences of making such a distribution: You'll have to pay income taxes and potential early withdrawal penalties depending on your age/situation.
If you are age 62 or older you are eligible to file for Social Security benefits, which can be a source of income. However, don’t be too hasty here as well. Claiming your benefit as early as age 62 can reduce your benefit 25% to 30% versus waiting until your full retirement age (66 or 67 depending upon when you were born) and close to 60% versus claiming at age 70 (the point at which your benefit maxes out).
Health Insurance is a Major Issue
If you are not Medicare eligible you will need to deal with health insurance. If your spouse is working he or she can usually add you to their policy. Loss of coverage is generally considered a “life event.”
If you are single or your spouse is not covered by an employer’s policy you will need to look at other alternatives. One possibility is COBRA coverage via your former employer. This can be an expensive route to go, but may be your best option in some cases. At the time of this writing, the Affordable Care Act is still in place and there are options you can explore there as well.
The best preparation is being prepared for what life brings your way.
- Save and invest regularly for retirement.
- Eliminate debt now.
- Have a sufficient emergency fund (typically 6-12 months worth of expenses).
- Live beneath your means.
- Network within your industry and keep your skills sharp.
- Have a “plan B” in place in terms of finding another job or doing some other sort of work if you are laid off.
Whether you need help dealing with an unplanned early retirement or just want to be sure that you are prepared for retirement whenever it occurs, give me a call at (785) 256-9150 or schedule your FREE initial consultation to discuss your situation.
Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.