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Half of All Retirees Left Work Earlier Than Planned. Here's How to Cope if This Happens to You

By Christy Bieber - Feb 14, 2020 at 8:33AM

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Dealing with the financial challenges involved can be tricky.

The age when you retire has a major impact on your financial situation. For most people, retiring means claiming Social Security -- and if you claim anytime before the age of 70, you won't receive the maximum benefit available to you. Plus, the sooner you retire, the sooner you begin withdrawing from retirement savings accounts instead of adding to them. 

Unfortunately, many people end up retiring earlier than expected. In fact, a recent survey from TD Ameritrade found 50% of current retirees had to stop working sooner than they'd planned. Health issues were the top reason for this, prompting 38% of early retirements, while layoffs and caregiving responsibilities accounted for a combined 33% of other departures ahead of schedule. 

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If you're forced to leave work before you planned, there are a few key steps you should take to make sure your early retirement doesn't leave you at risk of running out of money later in life. 

1. Take stock of your situation

When you're forced into early retirement, the first thing you need to do is see how much money you'll have available. This includes any pension income, Social Security benefits, and money from savings. 

Since you'll need your savings to support you for longer, choosing a safe withdrawal rate will be especially important.

Traditionally, retirees were considered pretty safe if they followed the 4% rule -- withdrawing 4% of savings in their first year of retirement and increasing withdrawals by inflation each subsequent year. But with longer life spans and lower projections for future investment returns, most experts now recommend being a bit more conservative in how much you take out of your accounts. 

Figuring out what funds you'll have available will guide you in the other decisions you have to make. 

2. Consider whether you'd be eligible for disability benefits

Filing for Social Security retirement benefits will result in early filing penalties if you haven't yet hit your full retirement age, which is between 66 and 67 depending on birth year. These reduce benefits by a small amount each month, resulting in a 6.7% reduction for each of the first three years and a 5% reduction for each year after that. 

If you've been forced out of work early as a result of your health problems, look into claiming Social Security Disability Insurance instead of starting your retirement benefits. This can help you avoid a reduction in your checks while also ensuring you still have income coming in. 

3. Determine if you can -- or should -- delay Social Security 

As mentioned above, claiming Social Security early could reduce your monthly checks by as much as 30%. And maxing out Social Security benefits actually requires waiting to claim them until the age of 70, as you can earn delayed retirement credits after hitting full retirement age. 

If you have enough savings to live on when forced to retire early -- without withdrawing so much that you risk the account running dry too soon -- you may want to wait to claim your Social Security benefits as long as you can. Larger Social Security checks mean you'll have more help later in life when health expenses are likely to rise. 

4. Make a budget

Once you know how much money you'll have available to you from your savings and Social Security, if you claim it, make sure you can afford the necessities.

Creating a budget will help you see what you can spend. And, by using your budget to set spending limits, you can also ensure you maintain the safe withdrawal rate necessary to make your savings last. 

5. Downsize if necessary

If you find you can't make your budget work with the income you have, you'll want to make lifestyle changes as soon as you can before you overspend. 

Relocation to a smaller home or place with lower cost of living could help you stretch your savings, as could getting rid of a vehicle or at least opting for a cheaper car. 

These steps can save your financial security if you're forced into early retirement 

If you have to retire sooner than planned, shoring up your financial situation is key. To do this, you need to make smart choices about Social Security while taking steps to ensure your savings lasts.

By reacting quickly to evaluate your situation and make a workable budget, you can ensure your early departure from the workforce doesn't leave you financially insecure for the rest of your retirement. 

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