Retiring earlier than expected isn’t a new phenomenon. In fact, half of current retirees said they retired early, according to a new study by Allianz Life. Some people are pleasantly surprised to find they are financially ready even earlier than expected. Some have just had it with the 9-5 grind and are ready to leave the workforce. But for many others, there is a much different reality.
In fact, the majority of people in the study say they actually retired for reasons completely outside of their control, whether they were ready to or not. Like the 34% who said they lost their job unexpectedly or the 25% who said they had health care issues that prevented them from doing their job.
What makes this even more surprising is that this data was gathered before the coronavirus pandemic hit the U.S., which means that with high and growing unemployment data, the situation is likely even worse now. These specific risks to retirement security are likely to become exacerbated as millions lose their jobs. Ultimately, this may push more people toward retirement, sometimes well before their planned start date and often without any choice in the matter.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
So how can people deal with an early and unexpected retirement? First and foremost, stay calm. Second, make a plan.
Filling in the gaps
First, health care. If you retire earlier than planned, you may not yet be eligible for Medicare, which kicks in at age 65, so you will need to look into how you will pay for your health care coverage. This could mean determining if you’re eligible for a Consolidated Omnibus Budget Reconciliation Act (COBRA) plan from your former employer, being added to a spouse’s plan through their employer, or purchasing coverage through the Affordable Care Act federal exchange or your state’s health care marketplace.
Determine your additional health care needs and any supplemental plans you may need, like dental care. Also, never underestimate the potential cost of health care in retirement. You will find yourself needing more health care services as you age, and it is not going to get any cheaper.
You may also be looking at claiming Social Security earlier than planned to help make up for lost income. While you might not have a choice and need the money now, if you are still able to delay starting your payments — even by a few months — you will boost the check you get from Social Security. Talking to a financial adviser specializing in Social Security can help you map out a strategy for when and how to take payments.
Explore other employment options
If you’re finding yourself in retirement before you were really “ready,” you may decide to look for another job — perhaps part time or hourly — either to help keep yourself busy, to bring in extra income, or get employer-sponsored health insurance. If you or your spouse are under 65 then you must find health care coverage until you can apply for Medicare at age 65. In the study, nearly two-thirds (65%) of people not yet retired believe it is likely they will work at least part time in retirement, but in reality, only 7% of retirees say they are currently working at least part time.
In light of the current economic situation and increasing numbers of people filing for unemployment, more retirees may choose to look for work in retirement to make more money. While some of those gig or hourly jobs might be tough to come by right now, keep an open mind about taking on a job perhaps in the future once the economy starts to bounce back. Not only can it help make up for some of the lost income you were planning on from your last job, but it can also help keep you mentally and physically fit.
Consider retirement income
Adjusting to not getting a regular paycheck in retirement can be a challenge. For some, incorporating a financial product like an annuity that offers guaranteed retirement income could be a solution that not only helps address the financial aspect of lost income, but can also provide reassurance that comes with guaranteed income for life. Not only do annuities provide income that can help address gaps due to no longer receiving a steady paycheck, but they can also provide a level of protection against market downturns like we have seen over the past few weeks.
Yet, only 30% of not-yet-retired people say they currently have a source of guaranteed income in their portfolio to help them meet retirement goals. And while 39% say they plan to purchase a guaranteed income product in the future, only 3% view it as a top priority.
Working with a financial professional, you can determine if a guaranteed income product makes sense for your financial situation.
A long road ahead
While no one can be sure what will happen next with the economy or the current COVID-19 pandemic, there are things we can do now to help set us up to manage retirement risks in the future. While saving and planning for retirement might not seem like a priority right now amid many of the other things happening in the world, it remains important. By having a strategy in place, you can be better prepared for whatever curveball might come next.
Annuity guarantees are backed by the issuing company.
-
Investors Buy the Nasdaq's Big Dip: Stock Market TodayStocks are up and down again to end an up-and-down week ahead of big earnings announcements and the eventual return of regular economic data flow.
-
What to Know About Portable MortgagesA closer look at how portable mortgages would work, who might benefit and why the concept is gaining attention amid high rates and limited supply.
-
Here's How to Plan This Year's Roth Conversion, From a Wealth ManagerWhile time is running out to make Roth conversions before the end of the taxable year, consider taking your time and developing a long-term strategy.
-
Four Times You Need a Second Opinion on Your Financial PlanIs your financial plan fit for purpose — or is your adviser peddling an outdated strategy? When you see these red flags, it's time for a second opinion.Evan
-
'But It's Not My Fault!': Your Insurance Company Absolutely Will Blame You in These Five ScenariosInsurance companies care about 'fault' in more ways than you think — from payment mishaps to your neighbor's landscaping — so it's on you to manage the risks.
-
How to Calm Your Retirement Nerves When It's Time to Shift from Savings Mode to Spending ModeTransitioning from saving to spending in retirement can be tricky, but devising a strategic plan can help ensure a smooth and worry-free retirement.
-
Why Wills and Trusts Aren't Enough in the Great Wealth Transfer, From an Attorney Who KnowsFamilies need to prepare heirs through communication and financial know-how, or all that money could end up causing confusion, conflict and costly mistakes.
-
Private Markets for Main Street: What Financial Advisers' Clients Need to KnowWith product innovation 'democratizing' private market access for everyday investors, advisers must step up their game to educate clients on the pros and cons.
-
Seven Practical Steps to Kick Off Your 2026 Financial PlanningIt's time to stop chasing net worth and start chasing real worth. Here's how to craft a plan that supports your well-being today and in the future.
-
A Retirement Plan Isn't Just a Number: Strategic Withdrawals Can Make a Huge DifferenceA major reason not to set your retirement plan on autopilot: sequence of returns risk. Here's how to help ensure a bad market won't sink your golden years.
