When you're making plans for retirement, you'll end up making some crucial assumptions in order to estimate the amount you should have invested for your future. Unfortunately, reality may not always match up to your expectations. and that could leave you facing serious financial trouble late in life.
A recent survey of current retirees by Goldman Sachs found that there's as much as a 51% chance your retirement plans could end up being derailed by a common issue that arises late in life.
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If this happens to you, it could leave you with too little invested for your future
According to the Goldman Sachs survey, 51% of current retirees indicate they had to leave the workforce sooner than they had planned. This includes 44.2% of men and 60.8% of women. Retirees who had to leave work early cited many issues prompting their unplanned departure, but health problems were a main cause of forced early retirement, with 23% of respondents indicating their health prevented them from remaining in the workforce.
Sadly, an unplanned early retirement for any reason could be devastating to your future financial security. Leaving work earlier than expected can cause a number of problems including:
- A reduced Social Security benefit: Many people can't retire without Social Security income. Unfortunately, the earlier you claim your benefits, the smaller they'll be. Filing for benefits before full retirement age (between 66 and 2 months and 67) means early filing penalties shrink your check. And beginning your benefits anytime before age 70 means you won't max them out because you'll give up delayed retirement credits that you'd qualify for after FRA and that raise your payment by as much as 8% annually.
- Lost opportunities to save: If you've planned to work until a certain age and set savings goals based on that plan, missing out on a few years of investing time could leave you short of your goals. Older Americans also get more opportunities to make tax-advantaged investments thanks to catch-up contributions. You'll lose some years when you could get these extra tax breaks if you're forced to retire ahead of schedule.
- Relying on savings early: Once you retire, you'll likely need to begin withdrawing from savings instead of building up your account. The more years you're dependent on your savings to produce income, the sooner the money is likely to run out.
- Insurance issues: If your unplanned retirement occurs before age 65 when you become eligible for Medicare, you could face high expenses for COBRA coverage or private insurance until Medicare kicks in.
All of this can add up to a situation where you find yourself in dire financial straits just because you couldn't fulfill the plans you had to work until your chosen age.
How can you make sure you're ready for retirement?
There's no real way to tell if you'll end up being one of the millions of Americans who ends up with an unexpected early departure from work. But since this happened to over half of current retirees, the odds aren't in your favor.
To make sure you aren't caught off-guard, plan for an early retirement even if you intend to keep working. Set your savings goals as if you'll retire in your early 60s and anticipate Social Security providing the lowest possible benefit. If it turns out you can work longer, there's no harm done since you'll just end up with more money to enjoy in your later years.
