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Forced Into Retirement? 5 Smart Moves You Can Make

By Maurie Backman - Apr 2, 2016 at 7:05AM

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Here's how to cope with the unexpected.

Though it's nice to assume that the decision to leave the workforce for good is one you'll have the privilege of making, many of us don't get a choice as to when we retire. According to a recent study by Voya Financial, 60% of Americans have to retire earlier than planned. Among those surveyed, 16% were forced to retire because of health problems, 11% lost their jobs, and 3% had to stop working to care for either a spouse or dependent.

Image source: Pixabay.

No matter the reason behind it, forced retirement can be a major blow to your financial plan. Here are five things to do if it happens to you.

1. Hold off on taking Social Security
If you have other retirement savings, a severance package, or a pension that kicks in, you may be able to delay claiming benefits till you reach your full retirement age (or better yet, even later). And there's a good reason to wait: Though you can start taking Social Security as early as age 62, if you begin claiming benefits before you reach your full retirement age, your monthly payment will be reduced. Worse yet, that reduction will stay with you for as long as you continue to collect Social Security (which basically means as long as you live). Say your full retirement age is 67 but you lose your job at 66. If your full monthly benefit amount is $1,200, you'll only get $1,120 a month for as long as you collect Social Security. Over the course of 20-plus years, that's more than a $20,000 loss in lifetime benefits.

Year of Birth 

Full Retirement Age

1937 or earlier

65

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

Data source: Social Security Administration.

2. Review your investments
The closer you get to retirement, the more conservative your investments should be. So if retirement comes unexpectedly, make sure your investments align with your new circumstances. If you were planning to stop working in five years and shift more of your portfolio to bonds (a safer choice than stocks) during the three-year period leading up to your retirement, don't wait to make that move. Review your investments, either alone or with the help of a trusted financial advisor, and make sure they're set up to provide decent cash flow. While stocks, for example, are fairly liquid, they're also volatile, and cashing them out at the wrong time could result in a loss -- which is the last thing you want once you no longer have a steady paycheck to fall back on.

3. Look for part-time work
If health issues -- your own or a loved one's -- force you into early retirement, it pays to see if you can swing some part-time work. If, for example, you retired because you could no longer manage the physical demands of your job or commute, you might consider consulting work you can do from home. On the other hand, if you retired to care for a spouse or family member, you might find that you're able to squeeze in some work on the side. Remember, any income is better than no income at all.

4. See if you're eligible for unemployment
Though the rules of unemployment vary by state, generally speaking, if you worked full-time and weren't fired for cause, you're eligible to collect unemployment benefits. Now this only applies if your company eliminated your position or let you go. If you left your job voluntarily to care for a family member, unemployment doesn't apply. But if you're entitled to unemployment benefits, claim them immediately. Depending on where you live and how much you earned, you could get over $1,000 a month until your benefits run out, which can help you cover your living expenses and postpone Social Security long enough to receive your full monthly benefit.

5. Lower your expenses
Retiring earlier than expected means losing out on income, and one of the best ways to counteract that is to simply spend less. You might consider downsizing your living space, cutting back on restaurant meals, or selling your vehicle if you live someplace that offers public transportation. Say you move to a smaller place and cut your monthly rent payment by $500 a month, and then save another $700 a month by giving up your car as well as some luxuries. Between severance and unemployment, that $1,200 savings just might bridge the gap between what you used to earn and your current income, which, again, could be just enough to help you postpone Social Security until you reach your full retirement age.

While nobody wants to be forced into retirement, if it happens to you, don't panic. Even in retirement, you never know what opportunities might come your way, and the sooner you adjust your financial plan, the better equipped you'll be to roll with your new reality.

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