Among those who retire early, 40% do so involuntarily. Job loss is a major culprit, but unplanned early retirement may also be caused by health problems of the worker or having to care for a family member – a spouse or other relative in ill health or an aging parent.
While retiring earlier than you had planned may be the furthest thing from your mind, you should prepare a retirement income projection that assumes an earlier retirement. 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 next year. This is probably unpleasant to contemplate, but it’s better to find out in advance should such an eventuality arise.
There are numerous websites 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 of the impact of leaving the workforce early and/or a decrease in earnings later in your work life.
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 comfortably retire. The more diligent you are in these endeavors, the better able you will be to cope with an involuntary early retirement. Consider the following couple:
I left work several years earlier than planned, due to a health issue. It’s one of those things that we thought only happened to other families. The financial impact 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. While it resulted in a somewhat lower standard of living, I’m really surprised at how well we are able to live despite the disruption in our financial and retirement plans.
Smart Money Tips
- Pessimism reigns. In the good old days, a single or couple of troubling events could trigger a stock market slump, but this one is awash with distressing signs. Take your pick: recession, inflation, rising interest rates aided by outsized (albeit necessary) Fed hikes, stagflation, soaring energy prices, looming midterm elections, political dysfunction, the Ukraine war, lower worldwide growth projections. Pessimism of this magnitude leads investors and the punditocracy to focus on the negatives while concluding that any positives will turn into worse negatives.
But those with a sense of history are beginning to see some hope. Past recoveries, whether caused by a single or plethora of worries, are begun amidst a wall of worry. The most recent was the onset of the 2020 COVID pandemic that shut down the U.S. and most of the world. Stocks suffered huge losses in March but rose over 50% before the end of the year – while the pandemic was still wreaking havoc. The oft-repeated lesson here is that good news isn’t needed for a rebound. Those who wait for the good news risk being way late to the recovery party.
- Getting rich is boring. Despite all of the ads, infomercials, and wealth seminars that purport to tell you the secrets of getting rich quickly, the truth is that getting rich is boring, and it takes time to get rich – decades for most who manage to do so. You already know that the surest route to wealth is to spend less than you earn and invest those savings wisely. It’s boring to be sure, but it’s also almost a certainty that you will accumulate a lot of money over the years. Moreover, as you are amassing your fortune, you’ll be able to sleep well knowing that you’ll have the wherewithal to meet any financial challenges that arise along the way.
Food for Thought
History has shown the biggest risk is not being in the market when it drops but being out of the market when it rises.
Money Can Be Funny
A bargain is something you can’t use at a price you can’t resist.
Word of the Week
vomitorium (vom-i-TOR-ee-uhm) – A passageway to the rows of seats in a theater; plural vomitoria
Origin: From Latin vomitorium, from vomere (to discharge)
I entered the London West End theater. When the usher directed me to proceed down the vomitorium to my seat, I was sorely tempted to leave the theater.