Many people dream of retiring early, but some don’t have a choice.
For example, air traffic controllers perform work that is so demanding, stressful and consequential that the law requires them to retire at 56.
While that sounds great on paper, they’re forced out 3 1/2 years before they can touch their 401(k) plans at 59 1/2, six years before they’re eligible for Social Security at 62, nine years before they qualify for Medicare at 65 and 11 years before full retirement age at 67 when they can collect full benefits.
That requires a whole different level of strategizing than the average retiree will ever have to worry about. If you signed an employment contract that includes mandatory early retirement, here’s what you need to consider.
Even if you’re planning for a fairly cookie-cutter retirement that checks most of the usual boxes, you’d be wise to invest in the services of a professional advisor. But if you’re dealing with the flood of variables that come with mandatory retirement, you simply can’t go it alone.
“I don’t believe retirement planning is a do-it-yourself project,” said Eric Mangold, founder of Argosy Wealth Management, an independent financial planning firm with over $1.2 billion in assets under management. “If you are in a job that requires you to retire early, sitting down with a qualified financial professional is a prudent move.”
Help from any qualified professional is better than a plan you scratch out by yourself on looseleaf paper, but you should look for an advisor who specializes in your situation.
Downshift Financial, for example, is a fee-only fiduciary firm specializing in early retirement, semi-retirement and launching nonprofits or other passion projects before full retirement age.
Sites like Wealthtender can help you find a qualified professional near you who specializes in retiring early.
Retirement comes with three critical and non-negotiable age-based milestones that you’ll have to plan to wait out if you’re forced to leave work early.
Move Some of Your Money Away From Pretax Accounts
You’re not allowed to touch pretax retirement accounts like traditional 401(k) plans and IRAs without paying taxes and hefty penalties until you’re 59 1/2. If your employer offers a company match, you should max it out in almost all cases, but those with mandated early retirement should consider diverting at least some post-match contributions to a Roth IRA.
Since Roth contributions have already been taxed, you can withdraw your contributions — but not your earnings — at any age without penalty. Your earnings will continue to grow tax-free. This can provide an income source to hold you over until you’re old enough to tap your 401(k) or IRA.
Plan for When To Take Social Security — And What To Do Until You Can
Since the SSA reduces your payments for claiming early and increases them if you delay retirement, the decision of when to take Social Security is always one of the biggest and most consequential choices that any retiree will make.
But since you’re not eligible until you’re 62 no matter when your job says you have to leave, those planning to retire early must have sufficient income in place to get by until at least the age of eligibility.
Bridge the Abyss Between Your Employer’s Coverage and Medicare
Employer-based health insurance has always been one of the things that makes a good job good — and if you leave one before you’re Medicare-eligible, coverage is expensive.
“A big question about retiring before age 65 is what will you do for medical benefits?” Mangold said. “Since Medicare eligibility doesn’t start until age 65, what will you do to bridge that gap in coverage?”
One of the best options is a health savings account. HSAs are a kind of pretax savings account that people with high-deductible health plans can use to pay for qualified medical expenses. One of the most versatile accounts you can open, HSAs have a triple-tax advantage, which means contributions are tax-deductible, growth is tax-deferred and you can spend the money tax-free. On top of that, you can use your HSA for qualified expenses before you retire and then bring the account into retirement with you.
You’re Retiring From Your Job — But What Are You Retiring To?
If you know the sun will set early on your career, you have to plan well in advance for how much money you’ll need to get through an even longer version of the extended modern retirement.
“A good exercise would be to understand when you retire, how much money you will have coming in from all your income sources like pensions, investments, rental income, Social Security, annuity strategies, etc.,” Mangold said. “Then you will want to know how much money you have going out in expenses. If your projection shows you having more money coming in income versus going out in expenses, you could be on a good track. If your projections show that you do not have enough money coming in to meet your lifestyle and living expenses, you may need to find other work until those figures are in your favor.”
But even if you do have a sufficient nest egg to call it quits when your job demands, you might not want to go fishing just yet.
“You may not be ready to fully retire even though your employer requires it, so what will you do for the rest of your life?” said Nancy D. Butler, CFP, a financial services professional, author, motivational speaker and founder of Above All Else, Success in Life and Business. “There may be classes you can take during these working years to qualify you for your second career. Or working part-time in another job may give you the experience you need to slide into a new job quickly.”
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