According to a study conducted by the Urban Institute and ProPublica, over half of workers over age 50 encounter a forced early retirement. This research also suggests that many of these workers will suffer financial setbacks, making retirement planning vital to their financial security.
While many dream of the day they can quit their job and take it easy, for some, retirement may come sooner than expected. As you age, there is a greater chance you will face early retirement due to a layoff, health issues, or disability. These factors are out of your control. However, preparing for a forced early retirement is the best way to combat these financial setbacks.
Below are 7 things you can do to plan and prepare for a forced early retirement event:
Start planning today
Retiring even a few years earlier than expected can significantly impact the income you need in order to support your lifestyle. Everyone has a different amount that will allow them to feel comfortable in retirement. The best way to discover your unique number is to partner with a financial planner. Partnering with a financial planner can help you discover all the factors that go into the calculation of your retirement number. They can help you assess every aspect of your financial situation and determine an amount that is suitable to your needs.
For example, let’s say you need $1,000,000 in order to retire comfortably. If you started contributing to your retirement savings at age 30 and invested $500 a month, you would be able to retire at age 66 (assuming a 7% interest rate). If you increase your monthly contribution by $100, you would be able to retire by age 64.
Even if you can’t afford to contribute an extra $100 each month, contribute anything you can. Even a few dollars here and there can make a substantial difference in the amount you save for retirement. Try using a retirement calculator to determine the impact a slight difference makes in your contribution amounts. Using a retirement calculator may help you stay motivated when planning for a forced early retirement.
Stick to a budget
Being able to properly plan for a forced early retirement isn’t just about how much you save, it’s about how much you spend, as well. Sticking to a strict budget now can help prepare you if and when you need to scale back in retirement due to a reduction in income. Scaling back on your budget during retirement can be a challenge, especially with all the extra free time you have to travel, spend time with your grandchildren, and indulge in your favorite hobbies.
By creating and sticking to a conservative budget, you will save more and pay down debt at a faster pace. This is a great time to eliminate unnecessary expenses and develop disciplined spending habits. Addressing your poor budgeting habits now will help you better prepare for the future, when it counts.
Pay off debt
Debt can eat up a large portion of your budget. Getting serious about your debt repayment will help you free up a lot of cash to pay for other important expenses. Whether you have a mortgage or high-interest debt, develop a debt repayment strategy to tackle your debt before your reach your golden years.
Not only will this help boost your income but it will eliminate the financial stress of carrying a large amount of debt.
Prepare for inflation
One of the biggest retirement killers is inflation. Many workers prepare and save for retirement, yet they forget to plan for inflation. Since 2008, the Consumer Price Index (CPI) has generally increased less than 2% every year. This is well below the historic rate of 3%. However, inflation is increasing, with this year’s projection being around 2.9%.
When you retire, the world will be a more expensive place to live. For example, $10 in 1978 would be worth $40.46 in today’s dollars. Your buying power will be a lot less in retirement. This is an important consideration when selecting your portfolio and investment mix. Partnering with a financial planner can help you prepare for inflation and discover the best portfolio mix to achieve your retirement goals.
Delay your Social Security benefits
While it may be tempting to start taking Social Security as soon as you turn 62, it can cut your benefit amount up to 30%. Until you reach full retirement age, you will receive reduced benefits based on the age you begin your distributions. If you’re relying on Social Security to fund a portion of your income in your golden years, you want the opportunity to maximize the amount you receive.
By waiting to take your Social Security, you can increase the benefit amount you receive. In fact, if you wait until age 70 to start taking your benefits, you can receive 132% of your monthly benefit. Waiting as long as you can to start pulling Social Security can help you prepare for a forced early retirement.
Explore early retirement options
Some employers offer “partial retirement” options. This means that you can work part-time in order to stretch out your retirement savings. By continuing to work for a little bit longer, you can continue to grow your Social Security benefits, pensions, and other forms of retirement savings.
Ask your Human Resources Department if your company supports “partial retirement” options. This will allow you to properly prepare and understand your options if you’re forced into an early retirement.
Consider a side hustle
If your company doesn’t offer partial or phased out retirement options, you may want to consider starting a side hustle. Taking on a side gig is a great way to earn extra income by doing something you enjoy. Whether you’re musically inclined or enjoy driving around the city and meeting new people, there are a number of ways to make extra income in your free time.
Now is the perfect time to begin looking for a side gig or part-time work that fits your personality and skill set. What hobbies do you enjoy that could yield a profit? Take a moment to write them down and research how to make money doing them. There are countless ways you can make money using the skills and talents you already have, all you have to do is get creative.
The bottom line
The more you plan for a forced early retirement, the fewer financial setbacks you’ll face. However, preparing and planning alone can be a challenge. Partnering with a retirement or financial planner can help support you through the retirement planning process and guide you as you’re faced with many different financial decisions. Working with a financial planning partner will help put your mind at ease and expose you to strategies to maximize the assets you already have.
If you’re looking for a retirement planning partner who can help you realize your financial goals, we have retirement planning offices in Redmond, Seattle, Mill Creek, the Tri-cities region, and Denver. Our firm focuses on helping retirees and those preparing for retirement achieve financial freedom by creating a plan that shows them how they can have the income they need and want until they turn 100.
If you’re ready to take the first step to achieving your retirement goals, our team is ready to assist you. We’ve helped hundreds of couples and individuals smoothly transition into retirement with confidence, and we’d like to do the same for you.