When you plan to retire at a certain age, you can follow a strategy that incorporates your investment moves, your health insurance and other factors. But what happens if you’re forced to retire earlier than you anticipated?
Unfortunately, this situation is not that uncommon. About 40% of Americans say they have been forced into retirement, according to a recent survey from Edward Jones and Morning Consult, a research firm. If this were to happen to you because of a layoff, company downsizing or a health issue, would you be prepared to maintain your lifestyle today – and in the future?
Everyone’s situation is different. If your forced retirement happened only a short time before you actually expected to retire, you might not need to take any steps at all. But if it was a matter of a year or more, you may need to look into the following areas:
• Cash flow – Obviously, a sudden, unexpected loss of employment will affect your cash flow. And if yours was the only source of income for your household, the situation could be especially concerning. Still, you may well have options that can help.
You might find a part-time job, for one thing – many employers hire seniors for various types of service-oriented work. And if you’ve built an emergency fund containing several months’ worth of living expenses, now might be the time to tap into it. You also might need to start withdrawing funds from your IRA and 401(k), though, ideally, you’d like to delay this move as long as possible, as these withdrawals may be taxable.
• Health insurance – Health insurance can be a major concern if you face an unexpectedly early retirement. Once you’re 65, you’ll be eligible for Medicare, but what if you haven’t reached that age? Through the COBRA legislation, you might be able to remain on your employer-based health insurance for a while – typically 18 months after your job ends.
However, COBRA is expensive: If you’re qualified, you might have to pay the entire premium for coverage, up to 102% of the cost of the plan, according to the U.S. Department of Labor. If you’re married, you might be able to get on your spouse’s health insurance, but if this option isn’t available, you could explore a Marketplace plan by visiting the healthcare.gov website.
• Social Security – A forced early retirement could affect your decision on when to start taking Social Security. You’re eligible to begin collecting payments at 62, but your checks will be considerably bigger if you wait until your full retirement age, which is likely between 66 and 67, depending on when you were born. If your sudden retirement puts you in a real cash crunch, you might have to start taking payments regardless of your age, but if you have enough in savings, or your spouse’s income is enough to keep you afloat, you may want to wait as long as possible so you can get the larger checks.
Of course, if your retirement comes while you’re still several years away from Social Security eligibility, you won’t have to make this now-or-later decision right away.
Being forced to retire before you planned can certainly be challenging. But by looking at the options available to you, in terms of finances and health insurance, you may well find choices that can help you minimize the disruption to your life.