How to Plan for a Forced Early Retirement


Every working adult dreams of the day they can retire and take it easy. But for some, retirement is forced upon them sooner than expected. When this happens, a world of financial stress can follow.

LIMRA Secure Retirement Institute found that 51 percent of workers retire between ages 61 and 65, while 18 percent retire even earlier than that. It may not have been in your plans to retire so soon, but life doesn't always go accordingly — things like declining health or caregiving for a loved one can force people to leave the workforce earlier than they anticipated.

Retirement experts advise that in the face of this new trend, your retirement plan should include early retirement options and safeguards. Below are six things you can begin doing now to prepare for an unexpected early retirement.

1. Start planning early

Retiring just five years early — at age 60 versus 65 — can significantly impact the amount of income you may need to retire comfortably. One common retirement rule of thumb that can help you roughly determine how much you should save is the four percent rule.

Financial experts believe you can safely withdraw about $4,000 a year per $100,000 of savings during retirement, and that would last you approximately 33 years. So, if your living expenses are $40,000 a year, you'd need to save $1 million. This simple rule does not account for inflation or other sources of income such as Social Security benefits, but experts believe it’s a good baseline for gauging your retirement needs. (See also: 4 Retirement "Rules of Thumb" That Actually Work)

Bumping up what you contribute to your retirement fund, even by just a few dollars a month, along with lowering your cost of living is a great way to prepare yourself and your family in case you have to retire prematurely.

2. Plan for inflation

While the four percent rule is a great place to start, if you know that early retirement is highly likely for you, you need to be more aggressive. Fidelity advises that your goal should be to save at least six times your current annual salary by the time you are 50, and 10 times your income by the time you are 67. If you are not near these targets, it’s time to rearrange some things, rein in your spending, and begin aggressively saving.

Another pitfall of retirement many people forget to plan for is inflation. Retirement investments have failed to keep pace with our aging population, Social Security cuts, and hedge against the investment risks brought on by the shift from traditional pensions to individual savings.

When you retire, the world will be a more expensive place than it was while you were saving. You must understand and plan for the fact that $10 today will not buy the same thing in 2035. (See also: 4 Ways to Protect Your Retirement From Inflation)

3. Don’t take Social Security early

In 2014, LIMRA found that 57 percent of men and 64 percent of women took their Social Security benefits early. But since monthly benefits rise five to eight percent annually between ages 62 and 70, the longer you can wait, the better off you'll be. For example, if your full retirement age is 66, but you begin collecting benefits early at 62, your benefit will be reduced by about 30 percent.

In years past, once you hit 65, you were eligible for full Social Security benefits and could retire and receive a monthly check from the government. However, that is no longer the case — especially for younger workers who must put in more years to reach their full retirement age. Experts agree that you should only take your benefits early if you absolutely need to. Proper planning can prevent this from being your only option. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

4. Consider a partial retirement option

"Partial retirement" simply means keeping a job on a part-time basis as a means to help stretch your retirement savings. By remaining in the workforce for a little while longer, you can defer retirement funds — such as Social Security, pensions, and even savings — until you decide to fully retire.

Some places, such as government agencies, offer phased retirement plans. These plans allow you to supplement your income by working part time while still contributing to your retirement fund and allowing you to keep a portion of your benefit package. It’s important to begin researching these things and understanding your options while you are able bodied. (See also: 4 Reasons You Might Have a "Phased" Retirement)

5. Find a side gig

If your company does not offer a partial or phased retirement option, side gigs are a great way to supplement your income and help tide you over until you reach full retirement age. And while most side gigs don’t come with benefits, you do get to set your own hours and work as you are able.

Now is the time to look into different side or part time jobs that fit your ability, skill set, and situation. What interests and hobbies do you have that could become profitable? Write them down and research ways you can make money doing those things. You may also want to research jobs you could do from home that are not too physically demanding.

Side gigs and part time jobs can also be good for your health. A 2016 Oregon State University study found that those who retire early die sooner than those who work beyond age 65. (See also: 9 Easy Ways Retirees Can Earn Extra Income)

6. Stick to a budget and pay off debt early

Surviving in retirement is not only dependent on how much you save, but also how much you spend. Most people have to scale back a bit during retirement due to a reduction in income. Scaling back after you retire is a tough thing to do. You have more free time to travel, indulge in hobbies, and spoil the grandkids rotten — all of which can quickly shrink your nest egg.

Start now by creating and sticking to a conservative budget. The extra money you save should go into your retirement fund or toward paying down debt. Scale back on expenses where you can and consider downsizing before it's time to retire for good. Establishing disciplined spending habits now will carry over and benefit you later — when it really counts.

A great way to reduce your overhead and free up some cash is to pay down your debt as quickly as possible and to get rid of your mortgage before you retire. The less debt you have, the more spending money you have. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

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