Like many things we long for, when the time finally comes, the idea of retirement turns out to be…complicated. And maybe no more so when it comes too early, and not totally by choice.
Full retirement age (FRA) is now defined by Social Security as age 66. That age will probably be pushed out to 67 and beyond over the next few years as part of the remodeling of Social Security that increasing longevity and deficit spending have made inevitable.
SSA currently defines 62 as early retirement, the age when eligible workers are first able to collect (permanently) reduced benefits. If you have pre-tax retirement accounts, you can begin withdrawing from them without penalty at 59-1/2. And maybe you can dimly recall when 55 was the I-beat-the-system age for an early exit from the rat race.
If you were able to achieve that goal, then bless you, no doubt you a) can afford it, and b) will make good use of your new life, which if you are in good health, hopefully stretches out another 35-40 years, ie, another whole working lifetime!
The trend is moving in the other direction. Last month, the Financial Times reported the “Golden age of early retirement is nearing its end.” Whether it’s more vigorous health and energy in later years, professional opportunity, or personal finance exigencies, an increasing number of people are planning to work longer than they might have planned earlier. For many, maintaining company-paid health insurance until Medicare eligibility at age 65 is paramount.
The dire state of personal savings of many in the boomer generation is often cited as a reason for delaying retirement, or continuing to work part-time in the time-honored status of being ‘semi-retired.’ The longer you are able to earn, the more opportunity you have to increase your savings while not yet beginning to draw on them. If you are not well prepared for living off your invested savings, working longer is a necessity, not a choice.
But what happens when retirement comes too soon? Planning to work longer is one thing, but clearly the deep recession and unemployment after the financial crisis have made job tenure among the ranks of the post-50 corporate cohort tenuous. Or you or someone close to you may have developed health issues that make working difficult. Losing a job or being unable to work is never a good thing, especially when the prospects of gaining another job that is even moderately comparable are slim—and you still need the income.
If you are not yet able to begin collecting a pension, Social Security, or tap retirement funds, you may need to re-organize your personal finances. This can be a wrenching, difficult time. You need to quickly get your expenses under control, dropping costly items that your suddenly lower income can no longer carry. You might need to downsize and free-up equity trapped in your home, perhaps find yourself in a lower-cost sunshine state sooner than you had anticipated. Work may become a series of part-time projects—try not to alienate yourself from your previous employer, who may become a prime client for the new 1099-you.
Expensive as it might be, do not neglect getting health insurance, which can cost $18,000-24,000/year. The cost of medical care and health insurance and maintaining company coverage is a major factor in the trend towards working longer—at least until eligibility for Medicare kicks in at 65. If you find yourself severed from a company plan and not yet eligible for Medicare, do not fail to find replacement coverage.
Ideally, if you are nearing Medicare age, you can arrange with your soon-to-be-ex-employer for continuing coverage as part of severance, or at least pay for a COBRA continuation until you find more suitable coverage on your own. Without it, you may wake up some morning with a bad headache that could ruin you financially, even as the miracle of modern healthcare patches you up and gives you a new lease on life. Incidentally, here is some useful information about the law, waivers and severance agreements which you may find helpful.
When Retirement Comes Too Soon is a Society of Actuaries booklet here on this website that covers these topics and more, part of the Managing Your Retirement resources on the site. If you are facing a difficult, unexpected retirement, contact me via email, or (201-741-9528). With a good financial plan, I can help you resolve your current difficulty as well as smooth the way into a more secure retirement.