Retirement is a significant life transition many people look forward to as a time to relax and enjoy the fruits of their labor. However, it can be a challenging and unsettling experience if this shift arrives unexpectantly.

Whether due to unexpected health issues, organizational restructuring, or other unforeseen circumstances, retiring sooner than anticipated is more common than you may think. In fact, 46% of surveyed retirees report leaving the workforce sooner than they had planned.

Of course, the best way to prepare if you’re still working is to build some flexibility into your retirement plan while considering the possibility of retiring sooner than you expect. Hopefully, this won’t happen, but if it does, preparing yourself for the transition in advance can mitigate a lot of stress. If you’ve already been forced into retirement earlier than expected, don’t panic! There’s still plenty you can do, as you’ll see in this article.

Assess your financial situation

One of the first steps to take when facing a forced retirement is to assess your financial situation. Evaluate your savings, investments, and any retirement accounts you have and consider consulting with a financial advisor to obtain a clear understanding of your current economic standing—after which you can create a plan aligning with your new circumstances.

Taking some time to assess your financial situation can also help you avoid making reactive, emotional decisions. Sudden retirement is often associated with factors outside of one’s control (health issues, layoffs, etc.), and in these situations, you may feel tempted to regain some semblance of the same by making a big change—such as selling your house. Although this may in fact be the right move to make, making a snap decision in the heat of the moment can unfortunately lead to regrets later on.

Create a realistic budget

With a clear understanding of your financial situation, it's time to create a realistic budget that reflects your new income and expenses. Prioritize essential needs such as housing, healthcare, and daily living expenses while cutting down on non-essential expenditures as necessary and identifying money-saving opportunities.

The key to creating a budget that sticks is to focus on prioritization rather than deprivation. For example, is your local coffee shop your home away from home? While cutting out your daily cup of coffee may feel like deprivation, perhaps you wouldn’t mind vacationing at a nearby national park rather than taking an expensive trip to Europe; for you, spending more on a daily indulgence is worth a cheaper vacation you’d find equally enjoyable as something more extravagant. This of course looks different for everyone, but now—as you transition into retirement—is a great time to stop and ask yourself which of your expenses are simply habits you’ve picked up over time and which are genuinely worth the cost.

Make smart use of retirement accounts and Social Security

Ideally, you’ve been saving for retirement for a while now via both a retirement savings account and paying into Social Security. You may think to yourself: I’m retired now. Time to take advantage of those assets! Not so fast; it may pay off to wait this out a little bit.

First, let’s talk about Social Security. When exactly to file for Social Security is far from an easy decision no matter when or how you transition into retirement. Though you’re eligible to take Social Security as early as age 62, you’ll receive a smaller benefit if you do so rather than waiting until you reach full retirement age (age 67, for those born in 1960 or later).

Moreover, you’d receive an additional 8% per year in benefits between ages 68 and age 70, so it’s prudent to wait until at least age 70 to file for Social Security. Of course, this isn’t a realistic option for everyone. Nevertheless, if you’re forced into retirement at age 66, for example, waiting four years may not be realistic but one year—coinciding with your full retirement age—may be within your means.

You’ll also want to consider which retirement accounts to draw from first. Prior to age 55, you’ll incur a 10% early withdrawal penalty if you make any withdrawals after leaving your job (with this number climbing to age 59½ if your 401(k) is with a past employer or you have a traditional IRA). Even if you can withdraw retirement assets in the absence of any penalties, that doesn’t necessarily mean you should. The longer you can avoid using those assets, the more they have the opportunity to grow.

As Social Security and retirement accounts are loaded with myriad rules and considerations, consider working with a financial professional who can help you create a plan to maximize your money.

Consider alternative income options

If you need more breathing room in your budget and/or are seeking a way to fill your days, you may consider part-time work, consulting, or a side gig—depending on your skillset and goals. Even an extra $10,000 a year can create the breathing room you need to postpone dipping into your retirement accounts, pension, or Social Security benefits.

You’ll also want to stay flexible. Maybe you love the idea of consulting, giving you the chance to use knowledge gained from decades in your field and work from home. Once you start doing so, however, you miss having an excuse to get out of the house every day or find the work less appealing than you had anticipated. In this case, you can consider doing something else such as working a part-time, low-stress office job that allows you to chat with coworkers and complete some work but without the stress and responsibility of your previous career.

Going back to work isn’t just about income; other benefits of working in retirement include staying mentally active, (potentially) earning health insurance benefits, and feeling a sense of purpose.

Evaluate your health insurance options

Healthcare becomes a significant concern during retirement, especially if your previous employer had provided health insurance. You don’t qualify for Medicare until age 65 and are thus left with few options if you’re younger than this age. In that case, you can negotiate health insurance coverage from your previous employer if you received an exit package or look into coverage through your spouse’s plan (if he or she is still working).

There’s also COBRA, which you can access for up to 18 months after separating from your employer—though the cost may be prohibitive—as well as insurance via HealthCare.gov. Several states have their own exchanges, in which case you can purchase coverage through the state, or otherwise through their federal counterpart. Both state and federal exchanges offer coverage subsidies based on income: meaning that even if you have considerable assets, you may still be eligible for a subsidy if you’re no longer working.

Embrace a healthy lifestyle

Retirement provides an excellent opportunity to focus on your health and well-being. Now is a great time to add regular exercise, a balanced diet, and stress-management techniques into your daily routine. Maintaining good health not only enhances your overall quality of life but also helps manage potential healthcare costs during retirement. Consider joining local community groups, fitness classes, or volunteer organizations to stay active and socially engaged.

Also remember to tend to your mental health and well-being as well; the sudden shift from a structured work life to unstructured free time can lead to feelings of isolation or loss of purpose for anyone, and even more so when retirement hits unexpectedly. Seek emotional support from friends, family, or support groups to share your concerns and experiences. You can also explore hobbies and interests to help achieve a sense of purpose and fulfillment. Always wanted to learn to paint? Write a novel? Take up gardening? Now is the time! Find a local class and get started.

Talk to family and friends

Retirement is a great time to engage in open, honest conversations with your family. Are you part of the 65% of U.S. adults who provide financial support to their adult children? If so, now may be a good time to discuss limiting or eliminating the same.

It’s also important to discuss any plans or assumptions with respect to family and friends. If you have grandchildren, maybe you assume you’ll help with childcare; your children may love this idea or perhaps already have a routine in place (or in mind) that best works for them. Maybe you’re dreaming of more travel time with your spouse while losing sight of the fact that he/she is still working and thus has limited PTO. No matter the topic at hand, the bottom line is to always communicate with friends and family rather than making assumptions.

Key takeaway

Being forced into retirement is often a daunting prospect, but with careful preparation and a positive mindset, you can navigate this transition successfully. By taking proactive measures and staying adaptable, you can transform this unexpected change into an opportunity for personal growth, fulfillment, and a new and exciting chapter in your life—perhaps the best one yet!

Want to speak to a CFP® professional to ensure you’re prepared for an early retirement? Schedule a FREE Discovery call today!

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.