About 60% of today’s retirees didn’t plan to retire when they did, and almost half of retirees enter retirement earlier than they’d planned, according to the Employee Benefit Research Institute. But while early retirement can be a goal for many people, a surprise early retirement — one you haven’t financially planned for — can be terrifying. Thankfully, if your golden years arrive earlier than expected, there are things you can do both before and during retirement to minimize the damage and start looking ahead.
While You’re Working:
Make Sure You’re Saving As Much As You Can
Hope for the best but prepare for the worst. The worst, in this case, is being surprised by early retirement. Are you using a full employer match on your 401(k)? Should you invest more aggressively? What about Health Savings Accounts? If you have an option to contribute to one, it has a triple tax benefit and could really help out with your health insurance bills if you were to lose coverage after an early retirement. Remember that in many cases not tapping into social security until you absolutely have to is a smart move, so make sure you’re maximizing your savings everywhere you can.
Pay Off Your Debt
This step is so important that, in certain cases, you may even want to prioritize your debt repayment over your 401(k) contributions, explains New York-based financial adviser Benjamin Schmid. For example, if you have short-term, high-interest debt — like credit card debt — you should aim to reduce it while your income is steady. If your income decreases unexpectedly, the last thing you want is debt weighing you down.
After You’re Surprised With Retirement:
Review Your Benefits
If it’s been a while since you went over all the specifics of your benefits, take a closer look at everything you’re offered. Do you have a severance package? Does your health insurance carry over into unemployment? If so, for how long? If you had to retire early due to an injury, are you eligible for workers’ compensation. Figuring these things out is crucial when it comes to determining what your new monthly income is going to be, especially considering that you may be too young to claim social security or apply for Medicare.
Be Careful With Your Withdrawals
Early withdrawals from your retirement accounts are a big no-no — if you take money out before you’re 59 and ½ years old, you can face penalties that cause you to lose a portion of your hard-earned savings. You also want to avoid tapping into your savings accounts and emergency savings if you can, but sometimes it’s unavoidable. When it comes to making withdrawals, Schmid suggests asking yourself: ”What am I going to use this money for?” If the money is for an emergency medical bill, a healthcare plan, or a roof over your head, then you’ve got the green light. If, however, you’re using that money for non-necessities, like a new car or vacation, Schmid advises you hold off.
After you’ve evaluated all of your options, benefits and potential income opportunities, calculate your total monthly income. Then, take a look at all of your monthly expenses. Find out if your current lifestyle is sustainable with your new income and if not — adjust it. “Sometimes it makes sense to move,” says Schmid. If you live in cities like New York and San Francisco, for instance, where real estate prices are astronomical, moving to a nearby suburb could save you a ton in monthly expenses (and you might be able to supplement your nested with equity from the sale of a home). For other ways you can cut back and budget for your new life, you may want to consult with a financial planner, Schmid advises.
Bonus: Follow Your Passions
Many people don’t just retire from something they retire to something, Connecticut-based financial planner David Wilson explains. Hobbies and daily activities that’ll keep you engaged can help make retirement truly fulfilling. Ideally, you can figure out what those might be while you’re still working. And, if needed, your interests could help you land a part-time job that’ll bring in extra income. In other words, try to do what you love, and find out where it may lead you.
With Megi Meskhi