Dealing with an Early, Unexpected Retirement

Current economic and health crises may be pushing many toward an unexpected retirement. Now is a good time to make a plan for yourself, just in case.

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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.

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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.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Kelly LaVigne, J.D.
Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.