When it comes to retirement, expectations and reality may collide, resulting in what might seem unthinkable – sudden retirement. Unexpected retirement can throw a wrench in the best-laid plans, or worse, force a need for fast planning if none exists.
While Americans anticipate, on average, to retire at age 66, the average retirement age is actually 65 for men and 63 for women. Half of the retired surveyed by Allianz reported that they retired earlier than they planned. Why? Just over one-third of those surveyed reported unanticipated job losses, while one-quarter reported healthcare issues.1
If you’re on the wrong end of an unexpected event that forces you to retire – or if you have retired for your own reasons there are approaches you can follow to get organized financially.
- Avoid reactive decisions. You may be tempted to make a big change, such as selling your house. In situations out of your control, it may feel better to do something rather than nothing. However, it is much better to take your time and assess the situation before acting. You may end up regretting a quick decision, especially if it is a major one.
- Determine your sources of income. Your sources of income likely include Social Security and income from your retirement savings. They may also include a defined benefit pension or rental property income. You can claim Social Security as early as age 62. While taking Social Security early will reduce your overall benefit by as much as 30%, you may not have a choice if you need the income. Your retirement savings are a significant source of retirement income. The more income you can squeeze out of those savings, the less you will have to tap into the actual principal. Spending now means you won’t have it later to generate income.
- Balance expenses and income. In sudden retirement, there’s not much luxury of time to optimize your sources of income. That means you need to help ensure that your expenses match your available income. This is where creating a budget comes in handy.
- Access health insurance options. Many sudden retirees are younger than 65, which is the age when you qualify for Medicare. This means you need to find insurance coverage. If you get an exit package from your employer, you may be able to negotiate health insurance coverage until you turn 65. You might also be able to access COBRA coverage from your former employer, which is available for up to 18 months after separation from employment. However, COBRA can be expensive. Another option for anyone seeking health insurance is the U.S. Healthcare Exchange, aka Obamacare.
- Consider a part-time job. If you’re short of income or have too much time on your hands, a part-time job may work for you. You may not need to work part-time for very long. Even $10,000 or $15,000 a year in part-time wages can give you some breathing room in your budget and allow you to postpone taking distributions from your retirement account defined benefit pension or claiming Social Security.
- Create or adjust your retirement plan. If you already have a retirement plan, it probably needs to be adjusted because it’s likely that your plan didn’t include a sudden retirement. If you don’t have a plan, now is an excellent time to create one.
Unexpected retirement can be a shock. With some careful planning and a long-term outlook, it’s not only possible to survive a sudden retirement, but thrive and enjoy your golden years.