This post What to Do if You Are Forced into Early Retirement appeared first on Daily Reckoning.
Will you still be working by age 70?
It’s a fair question.
According to a recent survey by the Employee Benefit Research Institute, nearly one-third of workers predicted they’d be working until age 70 or older, and only 10% expected to retire before 60.
The reality is only 7% of the retirees surveyed worked until at least 70, and more than one third quit work before age 60.
And this wasn’t a fluke scenario either. Corporate downsizing, health problems and other unexpected events have led to more than 50% of U.S. workers, over the age of 50, having to retire earlier than expected.
We tend to think we’re going to work up to, or longer than, traditional retirement age, but it’s not usually the case. In fact, more often than not, older U.S. workers are pushed out of their jobs before their planned retirement date.
Since this is the reality we live in today, I think everyone should have an emergency retirement plan. If you find yourself out of a job unexpectedly, here are some steps you can take to deal with the prospect of early retirement:
Being let go or having to take an early retirement package is not always easy to stomach. Your pride might get in the way of your best judgement so don’t make any quick decisions with your money.
Instead, give yourself a few days to collect your thoughts on what just happened.
Review Your Finances
After you’ve taken some time to reflect, start reviewing your finances. Most likely you were planning to continue adding money into your company’s 401(k) or other retirement accounts. Those contributions are likely going to end, so the question becomes: Do you have enough saved to retire?
You can use the 4 percent rule to estimate how much you can safely take out of your retirement accounts. But also be sure to include Social Security and any pension benefits you might have coming your way.
If the numbers look good, then you can safely retire without worry. But if not, you may need to consider part-time work or drastically changing your lifestyle.
Consider Part-time Work Or Consulting
The likelihood of you matching the job you just lost is low, so don’t feel bad about taking a lower paying job or one with less status. Every dollar you earn is one less you’ll have to pull from savings and investments.
Plus, some part-time jobs even offer benefits. Costco and Starbucks, for instance, give part-time staff health insurance and 401(k) plans with company match.
You can also explore the idea of consulting or trying something outside your field of work. Look at early retirement as an opportunity to try something new.
Lower Your Expenses
While you’re on the hunt for new employment, it’s best to tighten up your budget. Searching for work as you get older becomes more difficult and the process can take longer than when you’re young.
Have a look at your monthly expenses and determine which ones are eating up the majority of your household income. For most, housing and transportation will be the biggest culprits.
If you’re single or your spouse is unemployed, you may need to consider some drastic cuts, like selling your house and relocating somewhere more affordable, or selling one of your vehicles to lower expenses like insurance, gas, and maintenance.
File for Unemployment Benefits
If you get laid off, you’re likely eligible for unemployment. You’ve paid into the system all your working life, there’s no shame in taking the benefits now that you actually need them.
You will have to prove that you’re actively looking for re-employment so make sure you follow the necessary steps. And, if you have no income, you might also be eligible for other benefits like food stamps, job training or employment counseling.
Lastly, if you were forced to retire early because of illness, you may also be eligible for disability benefits.
Find New Health Insurance
If you lost your job tomorrow, you can stay on your former employer’s health insurance plan up to 18 months, but you’ll likely have to pay the full cost.
Rather than pay more than you have to, consider applying for new health insurance right away. Since your income will be lower now, you can qualify for subsidies or for Medicaid. These options will most likely be cheaper than the COBRA offered by your employer.
Be Smart About Social Security
If you’re eligible for Social Security benefits, you can start to take them as early as age 62. But, if you do, your monthly benefits will be permanently reduced.
You could lose as much as 30 percent, according to the Social Security Administration, if you collect at 62 rather than waiting until your “normal” retirement age.
What’s more, you can earn “delayed retirement credits” if you postpone your benefits past normal retirement age. Do some research to make sure you’re collecting as much as you possibly can.
It can be hard adjusting to a life that’s not built around work. So channel your energy into new projects and hobbies that are equally fulfilling.
If you’ve always wanted to spend more time woodworking or gardening, now is the time to do it. And who knows, you might even develop a hobby that will pay you back. A lot of retirees have found ways to make some extra cash buying and selling old antiques, tools, and other usable or collectible items online.
Having to retire early is not always a bad thing. You might get a significant buyout package or you might realize you were ready to retire all along.
Just be prepared for anything and you’ll lessen the shock if the day comes.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap
The post What to Do if You Are Forced into Early Retirement appeared first on Daily Reckoning.
Source: Daily Reckoning