Many people have a pretty good idea of when they would like to retire. Perhaps their anticipated retirement date is based on reaching a certain age or on having a certain amount in their retirement accounts. According to the Employee Benefit Research Institute (EBRI), nearly 7 in 10 workers (69%) plan to retire at age 65 or older. Specifically, 38% of workers expect to retire between the ages of 65 and 69, and 31% plan for age 70 or later (if at all). However, in contrast to these expectations, a Gallup poll found that the average retirement age in the United States has been 61 years of age since 2011. From 2004 to 2010, it was even lower – around age 60.
EBRI notes that in 2017, 14% of employees surveyed reported that their expected retirement date had changed during the prior year. Of those, the vast majority (78%) said that their retirement age had increased. The reasons for planning to work longer were almost exclusively economic, including:
- Not being able to afford to retire (49%)
- Lacking confidence in Social Security benefits (46%)
- Rising healthcare costs (45%)
- Wanting to make sure they had enough money to retire comfortably (44%)
- Having a higher-than-expected cost of living (41%)
- Needing to pay current expenses first (36%)
- Declining economic outlook (32%)
Planning for the Unplanned
While planning for retirement is important, Attorney Greg Bishop suggests also planning for an unplanned retirement. He explains that according to a December 2018 study by the Transamerica Center for Retirement Studies, only one in three people (35%) retired when they thought. The majority ended up retiring sooner than planned (56%), with the remaining 9% retiring later than envisioned. Of those who retired sooner than planned, most (54%) did so for employment-related reasons, such as job loss, organizational changes by their employer, unhappiness with their job, and early retirement incentives. The remaining 46% retired early for reasons of personal health or family-related concerns.
The May 2019 Report of Economic Well-Being of U.S. Households in 2018 published by the Board of Governors of the Federal Reserve System paints a similar picture. Specifically, the report notes almost one-half of the people who retired in 2018 did so before the age of 62, and one-fourth retired between the ages of 62 and 64.5. Moreover, 71% of those who retired before the age of 65 indicated that poor health contributed to their early retirement, whereas 45% noted that they were either forced to retire by their employer or were unable to find available work.
Adjusting to an Unplanned Retirement
Being forced to retire earlier than expected – whether for unemployment, health, or family reasons – is an economic one-two punch that can be debilitating. First, retiring sooner than expected eliminates your ability to continue contributing to your retirement accounts. Second, it forces you to tap into those retirement funds sooner than expected.
Bill Galvin, a certified financial planner with the Capital Management Group in New York, suggests the following four steps to move forward thoughtfully after an unplanned retirement:
1. Make Sure Your Health Insurance Needs are Met
If you are not yet 65 years old (and thus eligible for Medicare), having good health insurance is extremely important. Possible options for health insurance coverage include:
- Extending your prior employer-provided healthcare coverage for 18 months (or longer in some cases) by signing up for COBRA coverage. An election under COBRA must be made within the 60-day period known as a “qualifying event” (which includes loss of employment);
- Obtaining healthcare coverage under the insurance offered by your spouse’s employer; and
- Procuring new health insurance, such as those referenced at healthcare.gov.
2. Decide What to Do with Your Retirement Accounts
If your employment has not yet ended, consider contributing as much as you can afford to your 401(k) or 403(b) accounts to maximize any contributions by your employer. Once your employment ends, determine whether to keep your savings in your workplace account or roll it over into a different account (some employers may require you to roll it over). Factors to consider include tax considerations, fees, having all of your retirement funds in the same account, and the ability for people 55 and older to withdraw funds from a workplace account without penalty in the event of job loss.
3. Create a Realistic Budget
One way to decrease the stress created by an unexpected retirement is to create a realistic budget. There are a number of apps and online budgeting tools that can help you get an accurate picture of your spending habits. Once that is determined, you can examine your savings and set out a plan to stretch your dollars as much as possible. Given the unplanned nature of your retirement, it may require resetting expectations for how you thought your retirement would look.
4. Identify New Sources of Income
If you anticipate a job loss is on the horizon, apply for a home equity line of credit as soon as possible (which will be much easier to qualify for while you are still employed). In the case of an imminent layoff, downsizing or “right-sizing,” be aggressive about negotiating the best possible severance package you can and file for unemployment quickly. Finally, finding new sources to earn an income should be a key component of any retirement plan. Begin reaching out to your network of family, friends, and former colleagues to let them know that you are looking for a new opportunity. Although the unemployment rate is low, be patient in your search as ageism is a very real obstacle to overcome (notwithstanding legal protections to the contrary).
About Greg Bishop, Attorney
Greg Bishop is a business-oriented corporate attorney who always strives for improvement. He makes it a practice to only hire people who are smarter than him so that his team can raise the bar in helping the company be successful. He is passionate about living life to the fullest and helping others reach their full potential.