The statistics are scary. Among those who retire early, 40% do so involuntarily. Most often, job loss is the major culprit, but unplanned early retirement may also be caused by health problems or having to care for a family member – a spouse, child, an aging parent – or other relative in ill health.
While retiring earlier than you had planned may be the furthest thing from your mind, you should prepare retirement projections that assume an earlier-than-expected retirement and account for various possibilities. Here’s how:
- If you are in your 40s or younger. Prepare two projections assuming you will have to retire at age 55 and at age 60.
- If you are in your 50s or older. Prepare a projection assuming you will have to retire now or next year. This is probably unpleasant to contemplate, but it’s better to find out in advance where your finances stand should such an eventuality arise.
There are numerous online tools that have programs to help you prepare retirement income projections. Also, the Social Security Administration website, www.ssa.gov, can provide an estimate based on your earnings record, the impact of leaving the workforce early, or a decrease in earnings later in your work life.
Ultimately, unplanned early retirement may not be as financially deleterious as you may fear. Throughout your working years, everything you do with your financial planning and your career is geared toward an overriding objective – to be able to retire comfortably. The more diligent you are in combining these ingredients for success, the better able you will be to cope with an involuntary early retirement. Consider the following couple:
After a health scare, I left work several years earlier than planned. It’s one of those things that we thought only happened to other families. The financial impact of losing one income wasn’t as severe as we had originally feared, thanks to health insurance and our savings. Looking back on this a decade later, my leaving work early was frightening at first, but it caused us to re-evaluate the ingredients needed for a successful retirement and to change our priorities. Yes, it resulted in a somewhat lower standard of living, but I’m really surprised at how well we can live despite the disruption in our financial plans.
Smart Money Tips
- Be particularly careful of irreversible financial decisions. Some financial decisions are pretty much irreversible and arise when you’re about to retire or are already retired. These decisions include deciding when to take Social Security, converting part of your assets to an annuity for retirement income, and reverse mortgages. With all the above three decisions, you’re likely to be better off financially by delaying action. Evaluate your alternatives carefully because you don’t want to spend the rest of your life regretting your decision.
- If you have a summer job, there’s no rule that you must spend all of your earnings. This tip is directed to students who are fortunate enough to have a summer job. (If you’re a parent, please forward this to any children who have a summer job.) While the temptation to spend the fruits of your labor may be strong, you should set some money aside to help pay your expenses during the school year. Your parents will appreciate it and, more importantly, you’ll start to get into the habit of living beneath your means. That may sound like something old people like your parents need to do, and that’s precisely my point. By paying some of your own school expenses, you can help them live beneath their means, so you won’t have to support them in their old age. By the way, isn’t it fun seeing how much money is taken out of your paycheck for taxes and Social Security (usually disguised on your paycheck as “FICA”)? Get used to it.
Food for Thought
The ultimate victory in competition is derived from the inner satisfaction of knowing that you have done your best and that you have gotten the most out of what you had to give.
-Howard Cosell (sports commentator)
Money Can Be Funny
Jonathan’s two keys to a financially satisfying life:
- Retire rich
- Die destitute
Word of the Week
bombilation (bom-bi-LEY-shun) – A humming, buzzing, or droning sound.
Origin: From the Latin bombitare meaning “to hum” after the word bombus – a buzz.
There was a noticeable bombilation coming from the beehive.