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How to Plan for an Unexpected Early Retirement

Ways to get your finances in shape now in case you wind up in this position

By Marilyn Timbers, Voya Retirement Coach

Imagine this: you’ve been working hard for decades and are starting to feel comfortable with your financial future. All of sudden, a major life event forces you to retire five to 10 years earlier than planned. Now what?

Perhaps a serious medical issue emerges. Or you lose your job in your late 50s or early 60s and can’t find another. These and other similar involuntary retirement surprises are not uncommon. In fact, according to the recently released Voya Retire Ready Index, 60 percent of current retirees did not plan to retire when they did.

But just because retirement can be unexpected doesn’t mean that it has to be unplanned. Here’s what to do while you’re working to prepare for the possibility of a retirement happening earlier than you’d like:

Preparing for Early Retirement Due to Health Complications

Most Americans (91 percent) express concern about their inability to pay for health care expenses in retirement, according to the Voya Retire Ready Index. Start planning to cover those potential retirement health costs now, so they don’t catch you completely off guard.

One strategy is to begin working out a savings plan for the rest of your working years that focuses on monthly retirement income rather than a total nest egg figure. Projecting monthly income helps you determine if you are saving enough to cover living expenses. including health care, in retirement.

To figure this out, consider seeking professional help from a financial adviser or using a web-based retirement planning tool (one may be available through your retirement plan provider). Either can assist you in determining how much money you’ll need to be comfortable on a monthly basis over the course of your retirement. Then, build contributions to an emergency fund into your monthly budget accordingly, so you’ll have flexibility to cover expenses if you must unexpectedly retire due to health complications.

Preparing for Early Retirement Due to a Job Loss

To plan for the possibility of losing a job in your late 50s or early 60s and being unable to obtain a new full-time job, consider the impact this could have on your Social Security benefits.

The Social Security Administration defines Full Retirement Age at between 66 and 67, depending on when you were born. If you claim benefits before then (the earliest you can is age 62), your Social Security benefits may be reduced — by up to 30 percent at age 62 if you were born in 1960 or later.

So claiming Social Security benefits early due to an unvoluntary retirement might keep you from getting as much money as you expected. To prepare for this possibility, while you’re working, explore all potential savings options available that could supplement Social Security once you retire.

Could you open and fund a retirement account such as an IRA or Roth 401(k)? Are you using the full employer match to your 401(k) contributions? Are you comfortable becoming more aggressive with your investment plan — investing more heavily in stocks?

If you wind up retiring early, you may be happy you took the time to adjust your strategy to maximize your savings during your working years.


Eliminate Debt Now

Another smart strategy: focus on eliminating as much debt as possible now. The last thing you need when your income drops dramatically is being weighed down with credit card debt and loans.

A financial adviser could help you assemble a strategy that effectively tackles any outstanding debts efficiently. It’s easier to do this now, while everything is going well and you have a steady income stream, than to wait until you’re forced to retire unexpectedly.

Dealing with debt sooner rather than later will help you maintain your peace of mind throughout retirement.

If an Involuntary Retirement Comes

If retirement does catch you by surprise, take a deep breath and assess your options. A few suggestions:

  • Evaluate which expenses are absolutely necessary and which are not as critical, then adjust from there.
  • Try not to raid your retirement savings. Consider whether you can cover your essential costs by reallocating your emergency funds before cashing out any pensions or other retirement plans.
  • Look into whether you could do part-time work to generate income.

A Final Word of Advice

While you can’t know what will happen in the future, you can still plan for a potential turn of events. By taking the time to put together a flexible strategy that minimizes debt and maximizes your savings, you could make adjusting to an unexpected retirement much easier.

Marilyn Timbers, Voya Retirement Coach Marilyn Timbers is a financial adviser with Voya Financial Advisors. A Certified Financial Planner, she serves on the Women Advisors Network Board at Voya Financial Advisors. Read More
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