Money & Policy

Coping With Extremely Early Retirement

Retiring too soon can derail your financial plans

It’s a story heard all too often: Workers in their 50s are pushed into retirement early and, unable to find work, begin to tap their savings. But some simple strategies might help minimize the damage to a household’s savings.
A study last year by research firm Limra found that almost half of 1,533 retired workers who were surveyed had retired earlier than planned — and often not by choice. Seventeen percent left the workforce for health reasons; 14 percent were bought out and seven percent exited because of negative working conditions.
Finding a new job in later life is difficult, at best. And drawing from retirement savings, in such circumstances, often becomes unavoidable. But as Kelly Greene discusses in a recent article in The Wall Street Journal, households can take certain steps to keep any cracks in a nest egg from becoming larger than necessary.
Delay Withdrawals if You Can

Take on a part-time job, if possible, or take a knife to the household budget. In short, consider any action that will help you put off withdrawing from your retirement account for as many months as possible.

The thinking: Even if a reduced paycheck wouldn’t keep you on your previous savings track, at least it might let you preserve what you already managed to sock away.

(MORE: The 'Safety First' Guide to Retirement Withdrawals)

Replace Tapped Savings

If early nest-egg withdrawals become necessary, make paying yourself back a top priority.

Greene cites the example of Dan Wilking, a 60-year-old accountant in suburban Detroit who lost his job as a buyer for a coffee supplier in July 2006. He and his wife eventually turned to his 401(k) to help pay the bills.
Now working again, he contributed four percent of his pay to his 401(k) last year and this year raised it to 10 percent.
“My wife and I were used to doing things on an austerity basis,” Wilking tells Greene. “We live cheap and save everything else. When you have 10 years to build it back up, you have to work harder at it than you do when you have 30.”
Think Strategically About Social Security

Yes, if you lose your job before you planned to stop working and are at least 62 years old, claiming Social Security might look like the best solution. But you give up a bigger potential payout, because Social Security benefits increase roughly eight percent a year every year you delay collecting between your full retirement age and age 70.

(MORE: How Social Security Fits Into Retirement Plans)

One option: Withdraw tax-deferred retirement savings earlier and delay tapping Social Security until later. This can be especially effective for married couples where one spouse has at least some income.

This article originally appeared on MarketWatch. Glenn Ruffenach is News Editor at The Wall Street Journal, responsible for the Journal’s coverage of retirement finances and retirement planning.

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