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How To Handle an Unplanned Retirement

How-To If life throws a monkey wrench into your plans

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You’re Not Alone

About half of all Americans retire before they had planned.

The most common reason is a health or employment shock.  Whatever the reason, there’s no time at this stage of life to change careers, take a sabbatical, or ride out a difficult time and make it up later.  So what do you do?

It is critical that you get your income and expenses in line as soon as possible – not just now but for the rest of your life. How to Get Squared Away: In Retirement helps you do just that, with some specific adjustments, discussed below, if your retirement is due to an “unplanned” shock.

An unplanned retirement also takes a toll on your health and emotional state.  Some suggestions on how to deal with these issues are also offered below.

Get Your Expenses in Line

The Income You Need

How to Get Squared Away: In Retirement begins with a “rule-of-thumb” that says you need 75% of what you earned while working to to maintain your standard of living. However, maintaining your standard of living could now be difficult, if not impossible.

But start with the “rule-of-thumb” – or plug in what you think you need – and see how close you come.  Then use the budget tools listed (Figure Out How to Make a Budget in 3 Minutes and Figure Out Where to Cut Spending) to get your expenses in line.  The process is no different than if you retired when planned.  But the steps you’ll need to take are more drastic.  You might need to:

  • Sell a car – Can you get by with one car, or no car at all?
  • Downsize – Housing costs, including utilities, insurance, upkeep, repairs, taxes, and furnishings, take a huge chunk of most people’s budget. Moving to a smaller space, or where living costs are lower, or sharing expenses with a roommate, can save a lot.  If you unlock equity that could add to your savings, so much the better.
  • Take a sharp knife to “luxury” expenses – You may not like it, but tough times call for tough measures.
  • Scrutinize financial expenses 
    • The best “return” on your savings is often gained by paying off debt, and not just high-interest credit card debt. (See Learn About Paying Off the Mortgage.) If you can’t pay off a debt, many lenders have hardship programs that reduce interest or penalties. Or consider refinancing (See Figure Out If You Refinance …), and do it before your earnings history becomes stale.
    • Cutting investment management fees can save hundreds or even thousands of dollars a year (See What Mutual Funds Cost in Learn About Mutual Funds).  If you need a financial advisor, see How To Pick a Financial Planner.
    • A dollar saved on taxes is as good as any other. So make sure the property tax on your home is not set too high. Take advantage of tax holidays to reduce sales tax.  A financial planner might be helpful in reducing your tax obligations.

Get Your Income in Line

Add Up What You Have

Income from savings.  The “rule-of-thumb” used in How to Get Squared Away: In Retirement is that you can draw out 4% of your savings, that amount rising in line with prices, with little chance that you’ll run out of money.  If you’re about 65 and have average life expectancy, it’s a reasonable “rule-of-thumb.”  But it’s not if you’re younger or your health is better than average.  Then you can’t draw out that much without increasing the risk of outliving your savings.

  • To the extent you cut luxury expenses to get your budget in line, you’re less able to react to a down market by cutting expenses.  So you’ll need to invest more conservatively.
  • If you won’t turn 59½ this year, you’ll incur a 10% penalty on what you take out of your retirement savings – in addition to paying income tax.

Government benefits. Consider your eligibility for:

  • Unemployment compensation. Depending on the circumstance under which you left your job, you might be entitled to benefits, which typically run for less than a year.
  • Disability benefits. You might be eligible for workers compensation, Social Security Disability Insurance benefits, or Veterans’ disability benefits.  If eligible for private disability coverage through your employer, file a claim as soon as possible.
  • Social Security benefits. Financial advisors generally recommend waiting to claim to get a higher monthly benefit (See Learn About Social Security), but you might not have that luxury.  It might also make sense to claim early if you have good reason to believe that your life expectancy is shorter than average.
  • Government welfare programs. You might be eligible for Social Security Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other government programs.  Your situation needs to be pretty dire to qualify.  But don’t hesitate to use them if you do. After all, your taxes helped to pay for these programs while you were working!

 Other sources of income and savings.  Consider:

  • Employment. Just because you had to retire from your career job doesn’t mean you can’t work.  You can’t work forever.  But while you can, you add to your income and preserve your savings for when you no longer work. To consider some issues in returning to work, use Learn About Strategies for Older Workers.
  • Selling possessions – Can you convert assets you can’t spend into savings you can use for income?
  • Taking in a boarder. Rent out a room or your garage. But be sure it’s consistent with local regulations and legal requirements.

Secure access to credit. Access to credit is crucial when your nest egg is small, to smooth expenditure shocks (i.e., the transmission goes) or temporary income shortfalls (i.e., you sell your house and need to bridge the gap before you receive the proceeds).

It is harder to get credit when no longer employed.  So securing access to credit is a high priority if you’re still employed. If not, you might be able to qualify based on your recent employment history or even severance pay.  And do what you can to get your credit score up.

Sources of credit include:

  • Home equity line-of-credit.
  • Reverse mortgage line of credit.  Another way to access home equity, though not allowed before age 62.  Reverse mortgages can be quite complicated, so see Learn About Reverse Mortgages to know what’s involved.
  • Credit cards. Credit cards typically have very high rates of interest, so carrying a balance is expensive. Charges for late payments are even worse. So get a card with good terms for emergencies.

Take Care of Your Physical and Emotional Well-Being

Don’t Ignore Your Non-Financial Needs

Retirement is a big adjustment even for those who retired on their own terms.  When it comes as a shock, it can have serious adverse effects on your health and emotional state.

Take care of your physical health.  Your daily routine significantly changes once you retire.  So make sure you continue to eat right, maintain good sleep habits, and get enough exercise.

  • Quit smoking and/or cut down on alcohol consumption – to improve your health and save large amounts of money.
  • Staying healthy also saves money. Even if you have health insurance, you’ll pay less in deductibles, co-pays, and co-insurance, which can add up to thousands of dollars a year.

Take care of your emotional health.  Don’t underestimate the toll on your psychological well-being. Even people who retired on their own terms suffer from the loss of a job’s structure and sense of purpose. When the transition comes as a shock, depression and a loss of self-esteem are all too common. So take concrete steps to maintain your emotional health.

  • Retain luxuries that make you happy, just a bit more frugally. For example, go to a favorite restaurant, but once a month not weekly.
  • Keep a support network in place. Draw on family members, friends, and even former colleagues.  It may seem awkward to stay in touch with those still in the workplace, but give it a try.  The awkwardness might only be in your mind.
  • Avoid isolation.  Take the initiative to schedule lunches, outings, and meetings for coffee. Try volunteering in your community.
  • Use the great advantage of being retired, which is time.  Start a new hobby or resume an old one.  Go to parks, museums, and concerts that you never had time for before.  Don’t lose sight of the upside to retirement – just because it wasn’t your choice.
  • Seek counseling if you need it.  Talking with a professional can help you regain emotional health.  Ask your physician for referrals or other information. You could also check out Learn About Behavior That Can Ruin Retirement.

 

This How-to developed by the BSAS                              

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