While many workers look forward to the day they retire, others who are forced into early retirement — whether because of layoffs, health or other reasons — don’t have the same experience. Most important, they don’t have the same financial cushion to fall back on.
Increasing Iife expectancy and low levels of retirement planning might further complicate the matter.
While the sudden lack in income takes an obvious and enormous toll on these workers, experts outlined several steps to take in that case, which can help alleviate the financial stress and allow for a less arduous and more enjoyable retirement.
Take a Financial Inventory
The first step is to get a benchmark assessment of where your finances are and project what your income and expenses will be so you can put a plan in motion, said Bobbi Rebell, founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”
“Don’t forget to calculate retirement savings along with savings and investments that may or may not be labeled as retirement vehicles,” Rebell added. “Note which funds you can access with and without paying taxes and penalties, depending on your age and any other relevant criteria.”
Work With a Financial Advisor To Re-Evaluate Your Retirement Planning
When you are forced to retire early and you experience a sudden loss of income, it’s important to work with a financial advisor to take a step back and look at your financial picture so you can assess progress toward your retirement savings goals, said Sophoan Prak, financial advisor at Vanguard.
“With fewer years than anticipated to contribute your income to retirement savings, you may need to update your plans and expectations,” Prak said. “With this income shift, you may also be in a different tax bracket. Depending on your age, you may be able to withdraw from retirement accounts, like a 401(k) or IRA, penalty free if you don’t have a rainy-day fund.”
In turn, she said, a financial advisor can help you determine the best course of action, as well as identify any changes you should consider making to your portfolio.
Evaluate Your Health Coverage
Knowing what your healthcare coverage will be, for how long and at what cost is a good first step.
Often, an employer will continue benefits for a period of time, said T.J. Williams, financial advisor and regional vice president at Wealth Enhancement Group.
“This could be negotiable depending on the situation and the company,” Williams said. “Even as simple as scheduling the termination for the first day of the month can sometimes achieve the benefit of having coverage through the remainder of that month, before you must find alternate coverage.”
Another example is negotiating health insurance costs until you reach Medicare eligibility at age 65, Williams added.
If You Can, Take a Part-Time Job
Rebell recommends thinking about what matters to you and what it would take to preserve that part of your lifestyle. While it may mean some tough decisions now, it will be worth it if you can maintain the most important aspects of your life down the road, she said.
“Don’t be afraid to take a job just for the income if it will cushion the blow,” she said. “That may mean not stereotyping yourself as one thing that you have done to earn money and being open to things that may be at a lower income level but can fill in crucial gaps in your financial planning.”
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