When retirement comes too soon
People sometimes hit an unexpected bump on the road to retirement: a job loss, an illness, a disability or the need to provide care to a family member. Such an event can force you to make a number of decisions very quickly, possibly throwing a monkey wrench into any retirement plans you may have made. This urgency can also lead to decisions you'll come to regret later.
This situation is one of several retirement planning situations that have been addressed by a landmark effort from the Society of Actuaries (SOA) to examine the major decisions you'll encounter when planning your retirement. SOA's just-released series of online briefs, Managing Retirement Decisions, focuses on specific decisions you'll face before and during your retirement years.
The second brief in the SOA series helps you focus on what to do when retirement comes too soon. The financial questions are the same for anyone planning retirement: What are your sources of income? Can you postpone tapping your resources? How will you obtain medical insurance? You'll want to consider each of these questions carefully and take your time investigating the answers. In most situations, you shouldn't feel pressured to make hasty decisions you'll regret later.
In all cases -- layoff, illness, disability or caregiving need -- it's best to compare your expected living expenses to your retirement income from all sources, including Social Security, pensions and 401(k) accounts, to see if retirement is feasible. (If you've reached age 59-1/2, you can withdraw from your IRA or 401(k) without penalty, but consider this carefully. This money is intended to fund a retirement that could last 25 or more years.) If retirement isn't feasible at this point, then your only recourse is either to delay retirement until your retirement income grows sufficiently or to significantly reduce your living expenses. Resist the temptation to declare yourself "retired" and hope that somehow things will simply work out in the future.
Now let's take a look at the special circumstances of each situation.
Job loss or layoff
In addition to traditional retirement resources, you may be eligible for unemployment benefits, severance pay or the continuation of your medical insurance. Make sure you fully understand the benefits that are due to you. Your employer can often help you learn more.
You may be asked to sign a waiver not to hold your employer liable for claims against them. Waivers are legal, but they must comply with the guidelines outlined in the SOA brief.
Many people in this situation hold out for a new position with pay and responsibilities similar to their prior position. While this is certainly understandable, it may be better to take a position that's "beneath" you or pays at a lower rate than to retire fully and prematurely draw down Social Security, your 401(k) account and other retirement resources.
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Illness or disability
The SOA brief contains a checklist of possible disability benefits, including worker's compensation, Supplemental Security Insurance (SSI), your employer's short-term or long-term disability plan, and Social Security Disability Insurance (SSDI).
In addition, the Americans with Disabilities Act (ADA) makes it easier for persons with disabilities to continue working, either at another job or with reduced hours at the same job. This may be more desirable than retirement. Discuss the possibilities with your employer to see if you can work something out.
Caregiving need
Before retiring completely to take care of an aging parent, spouse or other relative, explore all the resources available to you. Can other family members pitch in? What community resources are available? Can your employer provide flexibility in your work schedule? Remember that you can only take care of others if you first take care of yourself.
Long-term care for aging parents could reach $300,000 per person: How to cope
Minimizing the consequences
And whatever you do, don't wait for one of the unfortunate circumstances discussed above to happen to you. Protect the retirement plans you've made by being prepared: Maintain an emergency fund, eliminate or reduce your debt, keep your skills updated, and maintain your network. All these things will help you if you should experience any of the situations described above.
Regular readers of my blog know I'm an advocate of making solid plans for retirement and then having backup plans in place in case some life event blows up your well-made plans. The SOA brief helps you do this by encouraging you to think through your choices and by providing helpful websites and resources. Don't ignore this free help: Take the time now to protect your retirement later.
Steve Vernon
View all articles by Steve Vernon on CBS MoneyWatch»
Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops
and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.
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