Suze Orman: These 3 Curveballs Could Derail Your Retirement Plan

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Suze Orman is an author, podcaster and self-proclaimed “World’s Most Influential Money Expert.” She has a relatable way of helping people understand how to get control of their finances and reach real financial security. Her motto is: “People first, then money, then things.”

In a recent blog post, Orman talked about what to watch out for as retirement nears. Here’s what she had to say about three curveballs that could potentially derail your retirement plan.

Continuing To Work for Pay

Orman cites the Employee Benefit Research Institute’s annual Retirement Confidence Survey, which found that 3 out of 4 working people expect they will continue to earn money in retirement. But among those already retired, just 3 in 10 are actually working for pay.

This disparity could be due to a couple of different factors. First, it’s possible that those who are still working for pay in retirement are just recently retired, and those who are not working are considerably older. There’s a big difference between working for pay when you’re 68 and working for pay when you’re 85.

The other difference could be the economics of working in retirement. If you retire and begin collecting Social Security benefits before your full retirement age (which is 67 for those born in 1960 or later), you could lose some of your Social Security benefit. If you earn more than $23,400 while collecting Social Security, you’ll receive $1 less in benefits for every $2 you earn above that amount.

Here’s an example. Joe is 64 and decides to begin collecting Social Security. His monthly benefit is $2,000, which is less than it would have been if he had waited until his full retirement age of 67. He earns $50,000 per year at his job. He will lose $1 in Social Security benefits for every $2 he earns over $23,400. Since he earned $26,600 over the limit, his annual benefit will be decreased by $13,300. So instead of getting $2,000 a month, or $24,000 a year, he’ll get $891.67 a month or $10,700 a year. Once he reaches his full retirement age of 67, he’ll get his full benefit of $2,000 a month.

On the other hand, Joe’s wife Barbara, also 64 and collecting Social Security, has a part-time job and makes $22,000 per year. Since her earnings are not over the limit, she will still get her $2,000-per-month Social Security benefit.

There are two takeaways from this curveball. One is that you may think you’ll continue to work for pay after you retire, but the reality is that you may not. So be sure to consider that in your planning. The other is that if you do plan to continue to work, it probably makes sense to refrain from taking Social Security until your full retirement age at the earliest.

Early Retirement on Your Own Terms

The Retirement Confidence Survey also notes that, of those who retired earlier than planned, two-thirds said it wasn’t their idea to stop working. This group was fairly equally split between those who were downsized or laid off from their job, and those who retired earlier due to health reasons. Some also mentioned having to retire early to care for a spouse or family member.

This statistic points out a grim reality for workers in their late 50s and 60s. If you leave your job, voluntarily or otherwise, it’s much harder to get a new job than it was when you were in your 30s. And even if your job is safe, an unexpected medical emergency may take the decision of when to retire out of your hands. Make sure your planning includes a provision for a retirement that’s earlier than expected.

A Slow Glide Into Retirement

Half of the workers who responded to the Retirement Confidence Survey said they anticipated that they would ease into retirement by reducing their working hours over time. Nearly 3 in 4 of those who are already retired, however, said their retirement journey was abrupt. They left their full-time job and were instantly retired.

Each of these curveballs represents a change to the retirement plans that you’ve so carefully crafted. But that doesn’t mean that all your hard work and diligence is wasted. It does mean, however, that you want to have a contingency plan for your retirement. If you’re thinking about what you want your retirement to look like, look at a few different scenarios. If you want to retire at 67, see what retirement at 65 would look like, too. And go ahead and plan to continue to work, but run the numbers without that extra income as well.

As Orman said, “It is fantastic to make plans and to work toward those plans. But the best plans are stress-tested to make sure they have a high probability of success, no matter what curveballs come your way.”

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