Given the economic climate we’re in, you may one day be faced with a downsizing or otherwise forced to retire earlier than you had planned. But even if that happens, you can still maintain control of your financial future — if you make the right moves.
Unfortunately, many of us are ill prepared for events such as forced early retirement. In 2009, more people filed for Social Security than any year in history, with a big increase in the number receiving reduced benefits because they filed before their full retirement age. And they paid a heavy price, too — 62-year-old workers who filed for benefits early lost about 25 percent of their monthly benefits over waiting until their “full” retirement age of 66, according to the Social Security Administration.
Of course, if you are forced to take an early retirement, you, too, may need to tap into your Social Security earlier than you planned. But that’s just the beginning — you might also need to start withdrawals from your IRA and your 401(k) or other employer-sponsored retirement plan, even though you had planned on leaving those accounts intact for a few more years. And that’s why you won’t want to wait until early retirement is thrust upon you before taking action. While you’re still working, consider these steps:
Boost your contributions to retirement plans. Put as much as you can possibly afford into your 401(k) or other employer-sponsored plan. Every time your salary goes up, try to increase the amount you contribute to your retirement plan. Also, contribute regularly to your traditional or Roth IRA.
Be prepared to rebalance your portfolio. If you’re facing a forced early retirement, or even if you think it’s a possibility, you may want to rebalance your portfolio to provide more opportunities for income. Talk to your financial advisor about income strategies appropriate for your particular situation.
Build up cash accounts. Even during “normal” times, it’s a good idea to keep an emergency fund, in cash or other liquid vehicles, containing six to 12 months’ worth of living expenses. If you suspect a forced early retirement is heading your way, try to beef up your cash holdings as much as possible.
Repay any 401(k) loans. Once you’ve left your employer, you may be forced to repay a 401(k) loan within two months — an obvious hardship during a stressful time.
Work part-time. Even if you were forced to retire from one job, it doesn’t mean you couldn’t find another. This might be the perfect time to take a part-time job in an area in which you’ve always wanted to work.
Get some help. By consulting with a professional financial advisor, you may find that you actually can afford to retire early. A financial advisor can help you develop those income and spending strategies that are appropriate for your situation. And the earlier you get this type of help, the more options you ultimately may have.
You may not be able to avert an unwanted, early retirement, but by preparing for it, as far in advance as possible, you can improve your chances of maintaining the retirement lifestyle you’ve envisioned.
Cardella is a financial advisor for Edward Jones in Hinesville.