Early retirement isn't only for the wealthy, and it doesn't always make your life more relaxing and enjoyable. Every year, people are forced out of the workforce earlier than they planned because of job loss, a health crisis, or needing to care for a sick family member. This can put a serious strain on their existing savings and may even threaten their financial security.
A recent Nationwide survey found that 49% of retirees reported that they retired earlier than they expected. Of this group, only 26% said they did so because they reached their retirement savings goal early. The remainder retired for other reasons, including those cited above. Exiting the workforce a little ahead of schedule may not seem like a huge problem, but it can have some devastating consequences for your retirement savings. I explain more below.
The potential consequences of unplanned retirement
The obvious problem with retiring early is that it prevents you from saving more for your future and forces you to begin drawing upon your retirement savings ahead of schedule. You may have to make sacrifices, like skipping planned trips or big-ticket purchases, because you need every dollar you have to cover your living expenses for your new, longer retirement. If you retired years before you planned, there's also the chance that you could run out of money prematurely, despite your best efforts to budget.
You might have to start Social Security earlier too. Beginning benefits before your full retirement age (FRA) -- 66 or 67 for today's workers -- or right away at 62 when you first become eligible might help you make ends meet in the short term, but it will permanently reduce your benefits over the long term. Those who begin benefits at 62 will only get 70% of their scheduled benefit per check if their FRA is 67 or 75% if their FRA is 66. If they live into their mid-80s or beyond, these individuals will probably receive a smaller lifetime benefit than those who were able to delay benefits until their FRA or later.
The reason you're forced to retire early could also bring additional costs. For example, if you are no longer able to work due to an illness, you might have no money coming in and expensive medical bills that drain your savings even faster. Caring for a sick family member could also bring additional costs, like extra transportation costs for doctor visits.
What to do if you're forced to retire earlier than expected
The first thing you must do after you're forced into early retirement is create a new financial plan. Take stock of your current expenses, including any new expenses that might arise like medical bills, and how much money you currently have in savings. Look for ways to trim back your budget to ensure that you're still able to afford the basics, including food, shelter, and utilities.
You should also look for ways to minimize the effect that early retirement has on your financial security. Consider a part-time job or a remote job if you are able to continue working in some capacity. You could also start a side hustle if you can't find a traditional employer willing to accommodate your schedule. Downsizing your home could also help you save on your living expenses, but do the math to make sure it will actually save you money before you go through with it.
See if you qualify for other government benefits, like Supplemental Security Income (SSI), to help reduce your out-of-pocket expenses. You may be able to save on food, housing, and healthcare costs this way to help your existing savings stretch a little further.
How to avoid an unplanned early retirement
The best way to reduce your risk of unplanned early retirement is to save as much as possible while you're young. Plan as if you were going to retire early, just in case. You don't have to actually retire if you reach your chosen retirement age and decide you'd like to continue working, but if you are forced out of your job for one reason or another, you'll be more prepared.
Take care of your health and encourage family members to do the same. You'll never be able to avoid all risk of injury, but you might be able to reduce your risk of illness by eating healthy and exercising regularly. Make sure you have good health insurance coverage at every age so you don't have to rely too heavily upon your personal retirement savings if a health crisis arises.
An unplanned retirement is hard to plan for, but it's important that you try. Taking steps to bulk up your retirement savings and protect your health can reduce your risk of falling into poverty if you are forced to quit your job ahead of schedule.