Early retirement sounds great—if it’s something you were planning for. But what if job loss, illness or disability, or caretaking responsibilities force an early retirement you weren’t planning for?
It’s not an ideal scenario, but all is not lost. If there are only a few years until you had planned to retire, the impact may be less devastating. If there are more than a few years until you had planned to retire, you’ll likely need to do more extensive problem-solving. Here are some things to explore, whether or not your planned retirement would have happened soon.
Review Your Exit Package
Depending on why you’re retiring early, an employer may offer a sweetened exit package that includes salary and a continuation of some or all of your workplace benefits for a period of time. This could include continued healthcare coverage and accelerated access to pension benefits if the employer offers one.
Whether or not you receive an exit package, take steps to maximize your benefits from any stock-based compensation such as stock options or restricted stock units.
Assess Your Financial Situation
If you’re hit with an unplanned early retirement, one of the first things to do is to assess your financial situation, including your sources of retirement income and your expenses.
Potential sources of retirement income might include:
- Balances in retirement accounts such as IRAs, 401(k)s, etc.
- Balances in taxable investment accounts
- Annuities
- Life insurance cash value
- Employer severance benefits
- Disability insurance payments
- Company stock plan benefits such as company stock, options and others
- An ESOP (employee stock option plan)
- A pension
- Social Security
- Balances in a health savings account (HSA)
- Income from a working spouse
Expenses might include:
- Housing costs such as mortgage or rent payments
- Food and related costs
- Healthcare costs
- Any debt payments such as mortgage, credit card or car loan payments
Why You’re Retiring Matters
All unplanned early retirements are not the same. There will be special considerations depending on why your plans have changed.
Job loss
In the case of a job loss, you may decide that you need or want to keep working, either because your finances require it or because you’re not yet ready to call it quits. While this might entail seeking a full-time position or perhaps something part-time, in many cases, those nearing retirement decide to go the self-employment route, such as consulting within their particular areas of expertise and work experience.
Maintaining your professional network is important at all phases of your working life, but this is especially important if you’re faced with an unplanned early retirement but still want to work for a few more years. Whether your network includes others in your industry and/or in your job function, these contacts can be an invaluable resource in helping you land a new position or strike out on your own.
Be sure to keep in touch with your network and let them know what you’re doing.
Illness or disability
If your unplanned retirement is due to an illness or disability that’s keeping you from working, finding other work may not be an option. But finding other income streams may be.
You might be covered under one or more of the following.
- Workplace disability policy. There may be a basic level of coverage offered as part of your benefits, and you may have been able to add a supplemental policy for an added cost. Payments from these policies are generally taxable and only cover 60% of your prior income or less. There may also be limits on the length of time you can collect on the policy.
- Private disability coverage. You may have purchased a private disability policy through an insurance company. These payments are tax-free to you, and you’ll want to check with your agent regarding the duration of benefit payments and any limitations connected with the policy.
- Social Security Disability Insurance (SSDI). This benefit is very difficult to qualify for; if you’re interested in applying, you might consider seeking the help of a professional who works in this area to file your claim. If you do get this coverage, it will transition seamlessly into Social Security retirement benefits once you reach your full retirement age (FRA).1
Caregiving
Caregiving is the most challenging reason for an unplanned early retirement because there are fewer resources available. If your caretaking is not full-time, you might be able to line up something part-time either with your employer or with another organization in your field. You might also be able to work for yourself, creating working hours that fit your new schedule.
If caretaking will require all of your available time, you’ll need to rely on your existing retirement resources. If you’re married and your spouse is still working, this can help both with income and with health insurance. Every situation is different so be sure to look at all of your options.
Devise a Retirement Strategy
If you’re faced with an unplanned early retirement, it’s important to step back, review your situation, and devise a plan to move forward.
None of us know what the future holds, so if you aren’t currently facing an unplanned early retirement, you might want to plan for the possibility by saving aggressively for your retirement. This may mean contributing to an employer sponsored plan like a 401(k) and upping contribution levels as often as possible until you’re able to contribute the maximum level allowed. If possible, invest in tax advantaged accounts like a Roth IRA or a traditional IRA in addition.
Should an unplanned early retirement situation arise, having a significant retirement nest egg will be a big help.
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