Retiring Early? You Have My Sympathy

Picture your transition to retirement. Most people probably envision an orderly shift from work to leisure. From alarm clocks and punch-in clocks to morning coffee and tee times. As one phase winds down, a new and exciting phase awaits.


The new phase offers something you previously had in short supply. Time. Time to pursue your passions. Time to help others. Time to spend with family and friends.


Now, picture retiring even earlier than you had hoped. What could be better? If retiring at 65 was the plan, retiring at 61 sounds even more wonderful. You must have done something right. Right?


In all likelihood, wrong.


For individuals retiring earlier than expected there are three big calamities that often force their hand. These three calamities are game-changers and push people into exiting the workforce earlier than anticipated – whether they are ready or not. And that’s the scary part. You may not be ready when one of these three misfortunes strike.


What are these calamities? Why are they so devastating? Can anything be done to counteract them? Let’s explore those questions.


Researchers have extensively investigated the reasons people retire earlier than expected. Recently, a major insurance company released its findings on the topic. The results weren’t groundbreaking. Rather, they confirmed what we already knew: For the vast majority of retirees, retiring early is not by choice.


The number one reason for retiring earlier than expected is declining health. It could be a disability or other major health event, such as cancer, stroke, or heart attack. Whatever the reason, the condition is serious enough that work is no longer an option. Either the time needed to remedy the situation precludes the retiree from working or he or she just cannot perform at the same level as before – physically, mentally, or both. Retiring is the only choice.


The second reason most commonly cited for an earlier than planned retirement is job loss. When individuals lose their jobs late in their careers, they often have difficulty finding a new one. Perhaps they cannot find anything similar in terms of responsibilities or pay. Or maybe their skills do not match the requirements of available job opportunities. Many times, retirees simply ask themselves, “Do I really want to start something new at this stage in my life?” Whatever the reason, a job loss in the late 50s or early 60s can result in early retirement.


The final calamity that causes early retirement has nothing to do with a retiree’s condition. In this situation, they are healthy and gainfully employed. Rather, the problem is with a family member. It could be that a parent can no longer function independently or that a son, daughter, or grandchild needs intensive help. Caring for loved ones is a selfless act, but it can impose struggles on those who devotedly provide the care, especially if they must retire to do so.


The concern in all three of these situations centers on how exiting the workforce earlier than expected impacts the individual’s financial situation. Unfortunately, people who are forced to retire early must battle a perfect storm of financial misfortune.


The last few years before retirement are usually top earning years. Missing out on income in these years can really set retirees back from a savings perspective. What’s more, formulas for Social Security and pensions are based on income, so lost income translates into lower future payments. And finally, early retirement means tapping retirement savings earlier than anticipated and consuming those savings over a longer period than expected.


This tragic confluence of events can wreck the finances of retirees who were otherwise on the right path to a successful – and planned – retirement.


Regrettably, there is little that can be done once one of these calamities strike. Insurance may provide some relief in certain situations. But the best antidote is early planning. After all, the three calamities are only calamities if you cannot absorb the financial shock they inflict.


Having a financial plan and stress-testing that plan with unexpected events, such as health issues, a job loss, or caring for a loved one is a great way to ensure you are ready for life’s unknowns.


In the end, a healthy cushion of savings, more than what would otherwise be needed to fund your planned retirement, is the best answer. But it is not an easy answer.


Let’s face it. Planning for life’s unfortunate events isn’t fun. But blindly hoping for the best surely won’t make you feel any better.

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