Retirement is a milestone that many people plan for diligently. But sometimes, the best-laid plans can be upended when life throws a curveball your way. The result? You might wind up retiring sooner than you're ready to, which really isn't a good thing at all.
Forced retirement probably happens more often than you'd think. In a recent TD Ameritrade survey, a good 50% of retirees said they left the workforce earlier than they would've liked, and for many of them, the reason boiled down to health issues.
Now if you start saving for retirement at a fairly young age, you may be in a strong position to cope with an early workforce exit without it upending your financial plan. But if you were counting on saving heavily in your late 50s and 60s, and that option is suddenly pulled off the table, you may be out of luck. That's why it's so important to start funding a retirement savings plan from a young age. That way, the shock of forced retirement may not be quite as painful.
Save now for peace of mind later
It's hard to carve out money for retirement savings in your 20s. At that point in life, you're most likely grappling with student loans, navigating a mediocre salary, and attempting to pay down credit card debt.
In your 30s, your income may be earmarked for a down payment on a home, or it may be spent welcoming children into the fold. In your 40s, those children will continue to cost you money, and during the first part of your 50s, you may be dealing with college tuition to help your kids avoid the debt you had no choice but to accumulate.
As such, you may be waiting until your mid- to late 50s to really start building your nest egg. But if you're forced to retire at, say, age 60 instead of 10 years later, your savings might suffer a serious blow. And that means you'll put yourself at risk of struggling financially throughout your senior years.
Difficult as it may be to set aside money for retirement consistently throughout your career, the sooner you start, the more protection you'll buy yourself in the face of an unwanted early workforce exit.
Let's imagine you're able to start funding a retirement plan with $200 a month at the age of 25, with the intent to ramp up your contributions in your mid-50s, when you're finally in a more financially stable place. If you do indeed sock away that monthly $200 over 30 years, and your investments deliver an average annual 7% return (which is doable when you load up on stocks), you'll be sitting on about $227,000. Even if you wind up having to stop working in your mid-50s, you'll still have a nice chunk of money to take with you into retirement. But if you save little to nothing earlier in life and are forced to retire early, you'll risk retiring with, well, little to nothing. And that's clearly not a good spot to be in.
While some people purposely try to retire early, for others, it's not so much a choice as a matter of circumstance. To avoid the financial repercussions of an unplanned early retirement, start funding your nest egg when you're young, and do so consistently over time. It'll help ensure that you won't retire broke, all the while taking some of the savings pressure off later in life.