Transitioning into retirement can be tough to do even when it is planned for. But when it happens unexpectedly, it can be devastating. Being blindsided by a sudden retirement for whatever reason is going to be hard to accept and will conjure up fear, anxiety and even depression. And while it isn’t how you want to head off into your supposed golden years, it’s doesn’t have to mean the end of the world either. The change in lifestyle isn’t going to be a walk in the park, but you can successfully transition into an unexpected retirement. Here’s how to do it.
The reasons for early retirement are many, but unless your health is suffering, retiring from one career doesn’t necessarily mean the end of work altogether. Countless retirees have left one career only to launch a new one. If you find yourself at the wrong end of corporate layoffs or downsizing, it's OK to have a pity party for a little while. But then it’s time to start thinking about your second act.
If you possess a certain expertise, you can try to get consulting gigs; if you don’t, there are always retailers that are hiring part-time workers. You can even go back to school or transition into a new field and get a new full-time job. When unexpected retirement happens, people have two choices: either downgrade their lifestyle drastically or generate comparable income. Most would choose the later. Merrill Lynch found in a recent study that retirees who have some form of work report being more stimulated, connected to others and proud compared to their counterparts who stopped working completely. (See also: Don’t Retire Early – Change Careers Instead.)
Unless you have a good pension or put a lot away for retirement, losing your job earlier than planned is going to require a change in your lifestyle. Depending on your current financial situation, the cutbacks may be small. But if you haven’t saved much for retirement, it could mean downsizing by a lot. Some retirees are forced to sell their homes and rent instead to free up income, while others get rid of their cars and other pricey belongings to shore up funds.
The last thing you want to do is start drawing down on your retirement savings sooner than you have to. You want to keep that money working while you are still healthy and tap it later on in life when employment is out of the question. (See also: 5 Ways To Stretch Your Retirement Budget.)
Turning to the government for help when you are pushed into retirement may not be what you envisioned in the latter part of your career, but it is a viable option to help you out. If you were laid off, you will likely be eligible for unemployment benefits. If you had to retire because of an illness or injury, there are also disability benefits. For retirees who have no savings and little income, there are other government services such as food stamps and Supplemental Security Income.
Swallowing your pride and seeking help can go a long way in making sure there is food on the table. If you're old enough to qualify, Retirement Strategies for Low Income Seniors offers useful leads. And be aware, that you may not need to be that old, as Senior Discounts So Soon? points out.
One of the biggest investments many people will ever make is a home. And while the end game is to pay off your mortgage and own property outright, your house can also generate retirement income for you. While the pros and cons of a reverse mortgage are many, for retirees who have enough equity in their home and need cash flow, it can save the day.
There are costs and risks associated with a reverse mortgage, and it won’t make sense for everybody. But it can be a way to deal with a cash flow shortage if you get pushed into retirement sooner than planned. (See also: The Reverse Mortgage: A Retirement Tool.)
Social Security benefits aren’t going to make up much of your lost income in retirement, but every penny will help, particularly if your retirement came earlier than planned. But since retirement can last decades, you have to avoid the knee-jerk reaction to start collecting as soon as you turn 62 or before your full retirement age. After all, claim early and you will get only 75% of your benefits. But if you wait, you’ll get 8% more each year from full retirement age until you hit 70.
If income is a necessity, Social Security can help, but make sure you are making the right decision when it comes to collecting your benefits. “Unless you can essentially guarantee an 8% return on your retirement accounts, I would hold off on claiming your Social Security benefits, let them grow and fund your retirement primarily from your retirement accounts until age 70,” says Kevin Michels, CFP®, a financial planner with Medicus Wealth Planning in Draper, Utah. (Read more, here: 4 Unusual Ways to Boost Social Security Benefits.)
“Many early retirees are unaware that you can take distributions from an IRA prior to age 59½ [without penalty] under IRS Rule 72(t),” says William DeShurko, CIO of Fund Trader Pro, LLC, in Centerville, Ohio. “The rule stipulates that you must set up a regular withdrawal that cannot be altered until age 59½ OR five years, whichever is longer. Distributions are based on a reasonable assumed interest rate and on the owner’s life expectancy. You should read the IRS code section and/or seek guidance from a financial or tax professional prior to setting up your withdrawals.”
Entering retirement without enough money saved is a bad situation in and of itself, but if the retirement comes sooner than planned it can be particularly hard to deal with. While transitioning to retirement unexpectedly can be quite challenging, by thinking about a second career, budgeting for the new reality, tapping government services and making smart decisions about collecting Social Security benefits, you can successfully ease into the new phase of your life.