Unexpected Early Retirement? Help Protect Your Financial Future
Many older workers are leaving the workforce earlier than expected due to health concerns, lack of job opportunities or other reasons. Take steps now to protect your finances if you retire early.
Has the pandemic changed your plans for retirement? Perhaps you intended to continue working and saving money for retirement a few years down the road. However, life doesn’t always go according to plan. Many older workers are leaving the workforce earlier than expected due to health concerns, lack of job opportunities or other reasons.
The New School’s Retirement Equity Lab estimated that 4 million workers ages 55 to 70 may be pushed out of the workforce due to economic and health challenges of the pandemic. For some workers, it can be difficult to get back in after leaving the workforce. The report estimated that more than half of unemployed older workers are at risk for involuntary retirement.
Be Financially Prepared
Early retirement is not necessarily a bad thing — it can be a great opportunity to do something new and different. But getting caught off guard financially can lead to a retirement savings shortfall. With fewer years on the job there’s less opportunity to build up retirement savings, and your nest egg needs to last for a potentially longer span of years in retirement.
Consider the following steps to help protect your financial future if you retire earlier than expected.
Control expenses. Review your budget and identify areas where you can trim spending. You may decide to postpone large purchases and cut back on the nonessentials to make your budget stretch further.
Build an emergency savings cushion. Aim to save at least three to six months of living expenses in an account that’s easily accessible. If you have emergency savings, this money can help you pay the bills and avoid raiding retirement accounts right away.
Control your debt. Reduce debt before you reach retirement and avoid taking on new debt if possible. If cash flow is an immediate concern, you may look for ways to lower monthly payments by refinancing to a lower rate or stretching payments over a longer term.
Review Social Security. Weigh your options for taking Social Security benefits sooner or later. You may be eligible for a reduced Social Security benefit at age 62, but if you hold off until full retirement age at 66 to 67, you’ll receive a larger monthly benefit. (Benefit amounts do not increase with delays beyond age 70.)
Think twice about tapping retirement assets. Review the consequences of dipping into an individual retirement account (IRA), 401(k) or other retirement plan. Withdrawing money before retirement age can be costly — taxes and penalties for early withdrawal in an IRA or employer plan may reduce your account balance significantly.*
Plan your health coverage. Medicare eligibility kicks in at age 65, so you may need to bridge the gap if you retire early. Investigate your options, which may include COBRA continuation coverage through a former employer, coverage on a spouse’s plan or an individual or family health plan.
Reevaluate insurance. Look for ways you can save on auto, homeowners and life insurance in light of your changing circumstances.
Don’t rush your financial decisions. Resist the urge to make drastic changes — such as cashing out insurance policies or overhauling your investment portfolio. Give yourself time to reflect before making any big financial decisions.
Contact your relationship banker to learn more. We would like the opportunity to provide an integrated, holistic approach to achieving your financial goals and plan for the what-ifs in life.
* Taxes will be due at ordinary income tax rates upon withdrawal from a traditional individual retirement account (IRA) or employer-sponsored retirement plan. Premature withdrawals (generally, those made before age 59½) may be subject to a 10% tax penalty, too (does not apply to 457 plans).
Neither this financial institution nor any of its affiliates give tax advice. Consult your tax advisor or attorney for information specific to your situation.