Retirement isn’t always planned. For most people, reaching retirement age means finishing a lifetime of hard work. They have saved up enough to rest and enjoy their days without a daily grind. That isn’t always the case though. Occasionally someone will experience what’s known as forced retirement. This is when you or your employer requires you to leave work whether or not you’re ready. For many people, forced retirement can be very disruptive and in some cases, it can even create financial hardship. You may want to consult with a financial advisor to help you make a plan for your retirement finances.
Consider Seeing a Lawyer
Forced retirement is often illegal. When discussing this issue, it’s important to distinguish forced retirement from late-stage layoffs. The latter occurs when you get laid off or fired late in your career. For example, you may be 62 and planning to work for another five years when your company downsizes. Your department loses its budget and you lose your job. Instead of trying to continue your career somewhere else, as you would have done at 32, you decide to accept early retirement.
It’s surprising and inconvenient, but nothing more than the product of bad timing and bad luck. Forced retirement is another issue altogether. Otherwise known as mandatory retirement, this is when your company terminates you because of your age.
The ADEA allows two main exceptions. First, an employer can set a forced retirement age if it has to do with a “bona fide occupational qualification.” For example, some physically demanding jobs like firefighting or police work can set a mandatory retirement age. Second, businesses can set a retirement age for some workers who are considered executives, policymakers or equity owners. For example, under some circumstances, a firm can have a retirement age for its equity partners or its chief executives.
In all other situations, though, your employer cannot let you go or force you into retirement simply by dint of your age. This is true regardless of the prima facie reason they give. Most employers that violate labor laws try to use at-will employment as a cover for their actions, claiming that they actually fired someone for reasons having nothing to do with a protected matter. But if you’re over the age of 40 and you think that you got pushed out for being too old, it’s time to talk to an employment lawyer.
Review Your Finances
If you were forced into retirement early, perhaps because of layoffs or even just personal reasons, the first step is to review your finances. By definition, you weren’t planning to be finished earning money yet, so it’s time to get a clear picture of where you are.
Ideally, sit down with a financial advisor to figure out what you have and what you need going forward. It will be important to review issues like your portfolio growth, taxes, when you can and should collect Social Security, what kind of expenses you have and more. If at all possible, you want to avoid selling investment assets too early. Your portfolio is at the peak of its earning power right now, with compounding returns finally kicking in. If there’s any way to leave accounts like your 401(k) and IRA alone until your planned retirement age, do so.
Regardless, your next steps will depend entirely on the outcome of this review. The all-important question for retirement is, “how long will my money last?” You answered this question years ago assuming that you would retire at a certain age, but now those numbers have changed. If you’re lucky, perhaps you got caught by surprise but are otherwise doing fine. If not, it’s still okay, but you might need to take some more active steps. The important first part is figuring that out.
Adjust Your Expenses
As part of your financial review, you will consider your expenses. When people enter retirement they tend to significantly reduce their day-to-day expenses. This is generally a combination of design and circumstance. With fewer demands on their time, they tend to spend less money. With less money coming in the door, they also tend to budget a little more carefully.
With a forced retirement it’s good to get even more intentional about this process. Look at your expenses and figure out what you can cut. If you intend to stay out of the workforce your lifestyle will change significantly and often in a good way. Your household may not need multiple cars anymore or you may not need to live close to the office.
All of us make a lot of assumptions when it comes to our spending habits, often spending money today because of needs and decisions from the past. Take some time to review your expenses and figure out what you will really need in retirement. It can make a significant difference in how long your money will last.
Find Benefits and Programs
If you were legally forced into early retirement, there’s a very good chance you qualify for some form of government assistance.
Laid-off workers, for example, can apply for unemployment benefits. Sick or injured workers may depending on their situation, qualify for Social Security disability payments. Different states will have specific programs to help workers who had to leave their jobs, which may particularly help if you had to leave work to care for a family member.
Regardless of the reason, this is important to explore. The government has many different programs to help people who lost their jobs because of reasons beyond their control, from layoffs and health to natural disasters. (If you were forced into retirement because a hurricane leveled your community and workplace, FEMA can help.) Don’t ignore this lifeline.
Potentially Prioritize Income
You have reviewed your overall financial plan and you have reviewed your expenses, and it’s entirely possible that the numbers don’t add up. With forced retirement, your instinct might be to simply adjust all the assumptions you made about life in retirement. That can work depending on your specific circumstances, but it’s important not to plan on tightening the belt too much.
If your new plan is to simply live the rest of your life on a shoestring or if you will need to sell investments too early to keep paying the rent, you might simply be setting yourself up for trouble later.
Instead, if possible, consider earning additional income during the remaining years before your planned retirement. By supplementing your income you can get ahead of the problems that arise from too-tight budgets or selling assets before you’re ready. If your health and personal circumstances allow it, working for a few more years (while unpleasant) will likely be far less trouble than cutting financial corners for the next 30.
Now, often articles like this will give advice like starting a business, going back to school or opening an online store. In most cases this is impractical. Starting a new business tends to be a high-speculation venture that can easily fail and, even if successful, takes years to pay off. The same is true of going back to school.
If you’re looking for a way to earn money over the next 15 years, go for it. If all you need is supplemental income to carry you from 62 to 67, then you are usually better off looking at contract work, part-time work and gig work. These are positions that can generate income immediately, with low risk and little overhead.
If it comes down to a choice between living on two-thirds of your expected budget, selling your house or spending the next five years working weekends at the local Starbucks. We’re not saying it will be fun but take that employee discount. It will be better in the long run.
Get Health Coverage
This is not in order of importance, because this is a big one. If you have lost your job, odds are you also lost your health insurance. And Medicare doesn’t kick in until you turn 65. So you will probably have a gap in health insurance coverage at an age when this has become particularly important. It’s critical that you arrange for health insurance coverage immediately.
There are many ways to do this. You can look for plans that specialize in covering this kind of gap. You can open a health savings account paired with a high-deductible plan. You can go on the Affordable Care Act exchanges and buy straightforward health insurance which, while potentially expensive, would be the best option for overall care. Depending on your financial situation, you can even look into Medicaid.
No matter how you answer the question though, it’s important to do so. At 25, your health insurance can be “I’m 25.” Even at 35, you can squeak by with weak coverage, a bottle of Advil and some luck. By the time you’re in your 60’s, though, real health insurance matters. Don’t sleep on it.
The Bottom Line
If you have been forced into retirement, you have several options. Review your finances, consider whether you should find a supplemental source of income and just make sure this was all legal. The most important part of this whole process is taking action right away and making sure that you have a plan. Working with a financial advisor might be a good way to feel confident about moving forward.
Tips for Retirement
- Retirement planning can be difficult, especially if it is unexpected. Working with a professional can help you make sure you’ve considered everything from income to a withdrawal plan from your retirement accounts. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Planned retirement is a big enough project, but early retirement? That can create a huge problem. It’s important to know the risks and properly prepare if there is still time.
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