Forced Retirement

DEFINITION of 'Forced Retirement'

Forced retirement is the involuntary ending of one's career because of a layoff, health problems or disability. Forced retirement can have a significant negative effect on workers' retirement plans if they are unable to earn years' worth of income that they anticipated and they are forced to take Social Security benefits early. However, just because a worker is forced to retire from one company does not mean she can't seek employment with a different company or pursue self-employment. A related concept is a mandatory retirement, where employees are required to retire when they reach a set age.

BREAKING DOWN 'Forced Retirement'

When most people think of retirement, they think of choosing when they will leave their jobs - usually when they have reached a certain age or accumulated enough savings to live off of comfortably for the rest of their lives. Forced retirement removes this choice from people and can be disruptive to plans. Sometimes companies that downsize will offer senior employees an early retirement package. This is a severance package by another name. In some cases, these may be employees whose jobs have become redundant; in other cases, companies may want to cut older workers because they tend to have higher salaries than younger workers.

Forced Retirement Realities

The average American retires at age 62; 20.7% of the population will be 65 years or older by 2050; the average length of retirement is 18 years; nearly half of retirees leave the workforce earlier than planned, sometimes involuntarily (41% retired due to health problems or disability, and another 14%, to provide care for a spouse or other family member). It's not known how many workers are forced to retire not due to health problems of themselves or a loved one, but the total is substantial.

According to the American Society of Actuaries, workers who are forced to retire would be wise to consult a lawyer before signing any documents or waivers offered by their employer. Other considerations are that workers who retire before the Medicare-eligible age of 65 will need to arrange
health insurance, though employers sometimes continue paid health benefits for a period or this can be negotiated; under COBRA, benefits can be extended at the employee's expense, for up to 18 months. 

Unemployment Insurance benefits replace a portion of lost wages, generally for up to 26 weeks, if you're looking for work but not if you're collecting a pension. Early retirees can access the money in their retirement plans; if they are at least age 59½, they can withdraw money from their IRA or 401(k) without a 10% penalty but must pay ordinary income taxes on the withdrawals.