Healthcare is already a significant part of many people’s expenses in retirement, and costs are…
It’s nice to be able to leave the working world at a time of your choosing. Unfortunately, not all of us have that privilege. When you have to make the jump to retirement unexpectedly, you have to make some sudden adjustments. Here are some tips to help you along.
1. Find out what benefits you’re eligible for
Whether you’ve been downsized from your position, or forced into retirement because of health or other personal issues, check with your HR department to see what benefits you’re eligible for. Some employers have official policies of offering severance pay to employees who are let go. This may be written into employment contracts.
Even companies that have no written policies regarding severance pay may be legally required to provide it, if they have always paid severance to laid-off employees in the past. A regular practice like this can become a type of de facto contract, which the company can be held to. A few states also require employers that conduct layoffs to provide severance pay and/or continue health benefits for a limited period of time.
2. Look for continued work
Can you find other work? Many retirees plan to keep working, for the income or for the social interactions and sense of purpose, or other reasons. If there is not a position readily available in the same career, you might try working online or a consulting business you can do at home. If you need to care for a spouse or family member, you might be able to fit in a part-time job or other income-producing activities on the side.
3. Review your investments
You’ll want to review your investments, particularly your asset allocation. The funds you will need in the next five years or so should be in conservative and liquid investments. Stocks are relatively liquid, but many are volatile, and if you are forced to withdraw from those accounts while the markets are down, you’ll have a loss that might be difficult to recover from.
On the other hand, staying too conservative with your investments increases the risk that you’ll run out of money at some point. Reviewing your investments, possibly with the help of a trustworthy financial advisor, can help ensure your savings will last through your retirement and generate enough income to meet your needs.
4. Consider when to take Social Security
If you’re approaching Social Security age, you’ll want to consider when to apply for Social Security retirement benefits. If you have sufficient savings, severance pay, or a pension, you might be able to delay claiming benefits until you reach full retirement age, or even later. Your benefits increase by 8% each year that you delay claiming benefits.
For example, suppose your monthly benefit at full retirement age is $1,335 (the average Social Security monthly benefit). If you started taking benefits two years early, you benefit would be reduced to 1,161. Over the course of a 20-year retirement, this can result in over $40,000 in added benefits. Of course, you’ll want to consider whether you to take the funds earlier, your family’s situation, and your expected longevity.
5. See if you’re eligible for unemployment
Each state sets its own policies, but generally speaking, if you worked full-time and were let go through no fault of your own, you’re eligible to receive unemployment benefits. This only applies if your company eliminated your position or otherwise let you go. If you left your job voluntarily, unemployment benefits don’t come into play.
But if you are entitled to unemployment, claim it quickly. Depending on your former salary and the state you live in, you could receive a substantial amount for sufficient time to help you meet your living expenses and delay claiming Social Security long enough to receive your full benefit.
6. Investigate health insurance
Although your employee health insurance may continue for a short time, you will need to find a way to meet your and your family’s healthcare needs. If you’re not yet eligible for Medicare, you will want to investigate other options such as group or private health insurance.
7. Lower your expenses
If you retire earlier than expected, that means you miss out on income that you were expecting. This can leave you with a shortfall. One effective way to compensate is to lower your expenditures. Many retirees look for ways to reduce expenses. Some of your expenses will decrease automatically, such as the costs of commuting to work and work attire. You might consider downsizing your living space, cutting back on eating out, or changing to a smaller vehicle. By saving a few hundred dollars per month each on rent and car expenses, and another hundred on restaurant meals, you just might save enough to help you bridge the gap.
Over half of retirees leave the workforce earlier than expected. Losing your job prematurely is not fun, but neither is it cause for panic. Preparing financially and psychologically can help you adjust to your new reality and be open to whatever new opportunities might come your way.
Here’s a video about how to handle an unexpected retirement.