Handling An Unplanned Early Retirement
Early retirement can sound quite appealing. But sometimes it happens unexpectedly when you are NOT ready to retire - due to illness, disability, caretaking responsibilities or a sudden job loss. With a job loss, many struggle to find new employment and may face the prospect of an unexpected early retirement, especially if they are over 50. What can you do if you face an unplanned early retirement?
Take Stock of your Current Finances
· Review your retirement accounts, bank and brokerage accounts, and Health Savings Accounts to understand potential sources of retirement income from dividends, interest, and distributions.
· Determine if you have any cash value in life insurance policies.
· Understand your employer severance benefits and/or disability insurance payments.
· Review company stock plan and ESOP (employee stock option plans) benefits.
· Obtain information about pension benefits.
· Research your payout options if you have an annuity.
· Decide whether you can/should begin Social Security benefits.
· Consider the income from a working spouse, if applicable.
· Review all expenses:
o Housing & utilities
o Groceries and household supplies
o Healthcare costs
o Debt payments (mortgage, credit cards, auto loans)
o Education and activities for children
o Personal care
o Pet care
o Support for family members
o Gifts, subscriptions, general shopping
o Fitness, dining out, entertainment, travel
o Other discretionary spending
· Determine whether any expenses can be reduced.
Carefully Review Your Exit Package
Some may be offered exit packages which can include a continuation of salary and workplace benefits for a period of time. Check to see if/ how long you can continue group healthcare coverage. Seek accelerated access to pension benefits and vesting of other benefits. Take the necessary steps to maximize your benefits from stock-based compensation (stock options; RSUs (restricted stock units)).
In Case of a Job loss
Decide whether you need or want to keep working, either for financial reasons or if you are simply not ready to retire. Consider whether you want to work full-time or part-time; in-
person, hybrid or remote. Many nearing retirement become self-employed by consulting within their particular areas of expertise and work experience. Also, actively maintain your professional network. These contacts can be invaluable in helping you land a new position in your industry or job function, or if you decide to strike out on your own.
In Case of An Illness or Disability
Finding other work may not be an option. If you cannot work, try to find other income streams. Research whether you are eligible for coverage through various forms of disability insurance.
· Workplace disability coverage - often offered as an employee benefit, either as a basic coverage only or with a supplemental policy for an extra premium. Disability payments are generally taxable and typically cover up to 60% of your prior income for a specific period of time.
· Private disability coverage - purchased on your own through an insurance company. Payments are tax-free income. Check on the duration of benefit payments and any limitations connected with the policy.
· Social Security Disability Insurance (SSDI) – this can be difficult to qualify for. Seek help using a professional who works in this area to file your claim. If you do receive SSDI insurance, it will transition into Social Security retirement benefits when you reach your Full Retirement Age which is age 67 for anyone born in 1960 or later.
In Case of Caregiving
Fewer resources are available for caregivers. If your caretaking role is not full time, try to restructure your job as a part-time role or seek more flexibility in your schedule with another employer. Consider self-employment to have more control over your working hours. If caretaking requires all of your available time, you may need to tap into retirement resources unless you are married with a spouse still working. Maintain your health insurance. If you are eligible for benefits through your employer using the Family and Medical Leave Act (FMLA), take advantage of this benefit. FMLA entitles you to 12 weeks of unpaid, job-protected leave in a 12-month period. https://www.dol.gov/agencies/whd/fmla
Consider Planning for An Early Retirement
The future is uncertain. While you may not expect to face an early retirement, it can happen. Consider building a bigger retirement nest egg now. Save more aggressively by contributing more to an employer-sponsored plan (401(k) or 403(b) plan), up to the maximum levels allowed by the IRS. Also consider investing in tax-advantaged accounts (Roth IRA; traditional IRA).
If you have questions about this topic, reach out to a financial professional. If you are not currently working with FPS, we would be happy to talk with you. Questions? We are here to help.
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Best regards,
Janet Rhodes Friedman, CFP®, CDFA®, MBA
Janet@PlanWithFPS.com
617-630-4978
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.