Take the time to design an alternative retirement plan should retirement come earlier than expected.
Imagine this. You’ve spent decades working, saving and planning for your version of the ideal retirement.
But life decides to throw a little kink into your plans. Your company was just acquired, and your boss is now strongly encouraging you to take an early retirement – five years before you’re ready.
So, What Now?
Well, first recognize that you’re not alone. Less than a quarter of American workers plan to retire before age 65, but almost half end up doing just that, according to the Employee Benefit Research Institute’s 2014 Retirement Confidence Survey. And most of them retire early through no choice of their own. The reasons vary – a personal or family health issue, loss of a job, burnout. The good news is you don’t have to be a victim of your circumstances should this happen to you. But, you will have to make some adjustments.
That retirement plan may need to be revised to account for poor health, higher expenses, lower income or simply having to stretch your nest egg over a few additional years.
Here’s what you can do to help yourself rebound financially and find a new path to the retirement you envisioned for yourself.
Once you’ve laid the groundwork for your new life in retirement, consider what’s next for you and your family. You could:
Forced early retirement may not be in the cards for you, but it can’t hurt to prepare for the eventuality that something might come along to alter your retirement plans.
There are a variety of simple strategies to help you increase your retirement security. For instance, an emergency fund can create a financial cushion if and when you need it. If you can’t afford to set aside cash, think about alternative sources of liquidity such as home equity or securities based lines of credit, which typically carry lower interest rates than credit cards. You may be able to get a tax deduction, as well. A word of caution: It’s much harder to qualify for a line of credit if you’re unemployed. Consider having a line of credit in place even if you never need to use it.
Another bit of advice? Save early and save often. Retirement is a big goal for many of us, so saving as much as possible in dedicated retirement accounts can give you quite a head start even if you have to retire earlier than expected. Maximize your contributions to 401(k)s, IRAs or Roth IRAs, then incrementally increase your savings rate each year. If you’re age 50 or older, take advantage of catch-up contributions, which allow you to save an extra $1,000 a year in qualifying retirement plans. The power of compounding has the potential to turn your diligent saving into a comfortable nest egg that could mitigate the impact of a forced early retirement. You’ll also want to proactively reduce debt.
And since health is a major reason that people leave work, do what you can to take care of yourself, physically and mentally. That means getting preventive care, eating well, exercising and getting enough rest.
Challenges and Opportunities
Retiring can be challenging for anyone, especially so if you don’t have much say. But as we mentioned before, there are ways to take back control and move forward, with the help of your professional advisors. Once you get over the challenges of planning for the unexpected and revise your retirement plan accordingly, look for opportunities to make the most of your, perhaps unwanted, fresh start. The future may be brighter than you ever imagined.
Material prepared by Raymond James for use by its financial advisors.
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