The Unexpected Retirement
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Maybe you planned on retiring at 65 or even a little later, then suddenly—pow!—life happens and you’re out of work well before that. A 2017 survey by the Employee Benefits Research Institute found that 48 percent of people retire unexpectedly, often because of health problems, caregiving demands, or being laid off from a job.
An unexpected retirement is a double whammy: It derails your future savings ambitions and may force you to tap retirement funds sooner than planned. The first thing to do—after taking a deep breath—is to “figure out how to move forward by thoughtfully examining your entire financial picture,” says Bill Galvin, a certified financial planner with Capital Management Group of New York. These steps can help you secure your long-term future.
1. Make Sure Your Insurance Needs Are Covered
If you’re not yet 65 and eligible for Medicare, good health insurance is a must. A spouse’s employer plan may offer your best option. Leaving a job enables you to sign up for COBRA coverage within the 60-day period after the so-called “qualifying event.” You can pay to stay on your workplace plan for 18 months, and in some cases that can be extended to as long as three years. (Check with your human resources rep.) Because COBRA premiums can be costly, examine plans at healthcare.gov to search for a better deal. Depending on your health and finances, a high-deductible policy might be an economical choice. Also, depending on your household earnings, you might qualify for a subsidy from the Affordable Care Act or for Medicaid, depending on where you live.
If you want to continue your life or disability insurance, find out whether your workplace’s plans are “portable.” You’ll have to pay the premiums, of course, but you avoid the risk of being denied coverage if you try to buy these on your own.
2. Decide What to Do With Your Retirement Accounts
In your final weeks on the payroll, try to contribute as much as you can to your 401(k) or 403(b) to maximize the match from your employer, says Maryan Jaross, a senior financial adviser in Boulder, Colo. The next big decision is whether to keep your savings in your workplace account, if that’s an option. (Some employers might require you to roll it over.)
There are pros and cons to staying with a company plan. Some reasons not to: The fees might be high, you prefer the convenience of having your entire nest egg in a single individual retirement account, or there might be tax advantages to moving funds into a Roth IRA. On the pro side: a little-known rule that permits people age 55 or older to make withdrawals from a workplace account without penalty in the event of a job loss. (You usually pay a 10 percent penalty if you withdraw money before age 59½, a cost you should avoid unless absolutely necessary.)
If you have a pension, you may have the choice of taking it as a lump sum or an annuity, a decision that depends entirely on your specific financial needs. Investigate whether you can take annuity payments before retirement age, which can be a helpful source of income. Because these decisions can be overwhelming, consider enlisting a fee-only financial planner to help you. Find one through the National Association of Personal Financial Advisors, at napfa.org.
3. Build a Budget You Can Live With
Create a spreadsheet or use an online budgeting tool (such as the one at bankrate.com; search for “home budget calculator”) to get a handle on your spending habits. Then examine your savings to figure out how much you can draw down each month. With an unexpected retirement, there will probably be a gap—though if you’ve been planning properly, it may not be as dire as you fear.
Still, you’ll probably need to stretch your dollars, which can mean anything from eliminating extras (vacations, a second car) to making major lifestyle changes. Downsizing to a smaller home or a rental apartment or relocating to a less expensive locale can have a big impact on your budget.
4. Identify New Sources of Income
A home equity line of credit is a good source of emergency funds, but you’ll need to apply for it when you’re still employed; otherwise, you probably won’t qualify. (Do this if you see a job loss on the horizon.) You may also be able to borrow from a whole life insurance policy, if you have one. Avoid relying on credit cards for expenses; this is not the time to go into debt. In the case of a layoff, be aggressive about negotiating the best possible severance package. And be sure to file for unemployment as soon as you can.
And last, “working should be a pillar of any retirement plan, so look for ways you can continue to earn income,” says Kerry Hannon, author of “Great Jobs for Everyone 50+” (Wiley, 2018). If you’ve been laid off, finding another full-time job can be tough but not impossible, especially with today’s low unemployment rate. But be realistic about your prospects. It might take awhile to land something, and you'll probably have to take a pay cut.
According to Hannon, the best way for older workers to job hunt is through personal referrals, so tell family, friends, neighbors, and former colleagues that you’re looking for work. Also, check job listings at aarp.org/work, where you can find employers who have pledged to hire older workers, and sites such as Glassdoor, Indeed, and Monster. If your skills are out of date or you just want to do something new, investigate training programs at local colleges or check out websites such as Encore.org and iRelaunch.
Editor's Note: This article also appeared in the March 2018 issue of Consumer Reports magazine.
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