The age when you leave the workforce is one of the most important factors determining how much money you'll have available in retirement. After all, if you can work longer, you have more years when you can earn and save, and fewer years to rely on your retirement savings. Working longer also enables you to delay claiming Social Security, which can boost this benefit.
Unfortunately, many people who plan to work well into their 60s or longer end up being unable to do so. In fact, a report from the Center for Retirement Research indicated that 37% of retirees had to stop working sooner than anticipated. And the longer people planned to stay in the workforce, the less likely they were to achieve their goals.
CRR also highlighted some of the top reasons current retirees stopped working before their desired retirement date, and the data shows early retirement is often involuntary. Let's look at why people end up retiring earlier than expected, and what you can do to make sure you're ready in case this happens to you.
Why do so many people retire earlier than planned?
According to CRR, top reasons why current retirees had to stop working before they had intended include:
- Health issues: Workers may be forced to retire earlier than planned either because health issues impacted their ability to work more than they anticipated or because new health problems arose that prevented them from working. This is the biggest reason for retirees to leave the workforce sooner than expected.
- Employment problems: Some workers are forced to change jobs and decide to retire when new positions don't work out as well or pay as much, while others aren't able to find jobs at all after a layoff or business closure.
- Familial issues: The need to care for a parent, spouse, or grandchild leads some people to leave the workforce and enter into an unplanned early retirement.
How an earlier-than-anticipated retirement can affect you
If you're forced to leave the workforce before you planned, you very likely will have too little retirement savings. Early retirement means you miss out on several years of working, earning, and investing funds. And you need money to live on once you no longer have a paycheck, so it could also force you to start making withdrawals from savings sooner than anticipated.
Leaving the workforce early also gives you fewer years of paychecks to help with debt repayment. You could go into retirement with a mortgage you'd planned to pay off if you'd worked longer, or you may still have other consumer debt you'd have been able to pay down by working longer.
If your savings isn't enough to sustain you, you may also be forced to claim Social Security benefits earlier than planned. While you can claim Social Security as early as age 62, retiring before your full retirement age means your benefit will be reduced -- and this reduction in benefits can be substantial. If you had hoped to work until age 70 to earn delayed retirement credits and get the biggest possible Social Security benefit, your Social Security income could be a lot lower than expected if you end up being forced to claim early.
And if you're forced to retire before you become eligible for Medicare at age 65, you may need to pay very expensive insurance premiums to keep COBRA coverage through your former employer or buy an insurance policy on the individual marketplace.
What can you do to prepare for an unanticipated early retirement?
Trying to avoid an unexpected early retirement is the best approach, as you want to be able to retire when you're ready and not when circumstances force you to leave work. Maintaining a healthy lifestyle, eating right, and getting preventative care can help you maintain your health so you can work as long as you want. Unfortunately, there are no guarantees, and even healthy people suffer unexpected illnesses and injuries that can make continuing to work difficult. Plus, even healthy seniors can face difficulty finding a job.
To make sure you're prepared if you're forced to retire early, set your retirement savings goals as if you'll retire at age 62 -- or even younger if there are lots of health issues in your family or if your job is very physically demanding. If you save enough that you're prepared to retire at this age, you can choose to continue working if you want, but you won't be in a position where you're at risk of financial disaster if you either can't work longer or simply decide you don't want to.
Be prepared for an early retirement
With more than 1/3 of current retirees indicating they had to leave the workforce earlier than planned, future retirees need to be prepared for this same fate to befall them. You don't want to be left with too little money if the time to retire comes sooner than you hoped, so step up your savings today to make sure you have the money to sustain you even if you end up with an unplanned early retirement.