Between 1992 and 2016, 56% of all workers age 50 and older were forced into an unexpected early retirement, according to a recent study by the Urban Institute and ProPublica. Some of these folks lost their jobs due to layoffs, corporate downsizing, and buyouts. Others decided to retire because of a pay cut or deteriorating conditions at their workplace. And still others retired due to health concerns or other personal issues.
Any time I see a statistic saying that something happens to 50% of retirees, that gets my attention. A number that big means unexpected retirement should be on everyone’s radar as they move into the second half of their careers. Fortunately, my Keen Wealth team is familiar in dealing with this all too common issue. So, on today’s show, we talk about the steps that we go through to help folks cope with unexpected early retirement and engineer a new path forward.
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1. Don’t panic.
When your employer hands you a severance package or buyout offer with a deadline, it can feel like the clock is ticking. That sense of panic only gets compounded by all the hurt feelings and worry that can come with an unexpected job loss.
That’s why it’s so important that you take a breath, try to set your emotions aside, and avoid any kneejerk reactions. Don’t run out and sign up for Social Security just because you’re eligible. Don’t immediately roll over your 401(k) into an IRA. Don’t cash out any of your other retirement assets because you feel like you need a safety net.
In short: don’t do ANYTHING until you’ve gathered yourself and worked through the next two steps with your spouse and financial professionals.
2. Put together your net worth statement.
If you don’t already have one as part of your financial planning, you need to put together a simple balance sheet that lists all your assets and liabilities.
Important items to include are:
- Annual income
- Real estate
- Personal valuables (vehicles, jewelry, etc.)
- Bank accounts
- Investment accounts
- Retirement plans (401(k), ESOP, IRA, pension, etc.)
- Business interests (ownership, equipment, etc.)
- Credit card debt
- Vehicle loans
- Personal loans
- Potential upcoming expenses (such as a health care or housing issue).
This statement will give you a road map of where your life is right now, as well as a view around the bend at what you might need in the near future.
3. Assess your options.
Now, to get a more complete picture of your financial situation, we’re going to examine how certain decisions could impact your net worth statement and a potential early retirement scenario.
Health care. If you are the spouse who provides health care for your family through an employer-subsidized plan, you’re probably eligible to stay with that plan through the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA coverage can last for 18 months, but you will be paying the premium out of pocket. If you’ve never checked how much your employer pays to subsidize your coverage, that cost might be a bit of a shock.
If your spouse also works, you should check if his or her employer offers health care coverage you can both start using.
If you’re old enough, Medicare is another option, but remember that Medicare is not a group option. If your spouse isn’t 65 he or she will have to get coverage elsewhere.
The last option is buying insurance yourself from your state’s Affordable Health Care Act marketplace.
Social Security. Social Security generally does not provide a large enough benefit for most retirees to live off of. You need to check your current benefit statement to see what you are eligible for. It’s usually best not to pull this particular lever unless it’s absolutely necessary, especially if you intend to find another job. The longer you work, the larger your benefit ultimately will be. But once you start taking Social Security you’re locked into that benefit amount.
Saving and Investment allocations. We recommend that our clients try to save enough cash to cover six months of their expenses in an emergency bucket. We might consider tapping into these reserves to cope with an unexpected early retirement. Another option would be scaling back regular monthly investment contributions until cash flow has stabilized. We’ll also weigh the pros and cons of cracking open retirement accounts early. And if you’re bringing a 401(k) or ESOP with you from your old job, we’ll decide if rolling that account into an IRA is the right move.
Potential sources of additional income. Filing for unemployment is an option for folks who plan to find another job. Just be aware that this is one of those decisions that shouldn’t be automatic, because there are some complex rules to navigate. We’re also going to look at any pensions you might have and any other additional income that might be on the table as part of your severance or buyout package.
Always plan ahead.
An unexpected retirement is just one reason that we place so much emphasis on having financial plans done well in advance. When you’ve spent the better part of a decade planning to retire at 65 and you’re facing an unexpected job loss at 58, there’s real comfort in being able to look at your plan with your fiduciary advisor and plot the adjustments that can keep you on course.
Let’s have a chat about where you are in your career, where you hope to be when it’s time to retire, and, how we can create a plan to help you navigate through life’s unexpected curveballs.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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