Many people spend years, if not decades, planning for retirement and saving for that milestone. But not everyone's plans come to fruition.
The COVID-19 crisis has taught us that the hard way. Millions of Americans have lost their jobs in the course of the pandemic, and that includes a large percentage of older workers who may be forced into early retirement as a result.
In fact, it's estimated that 48% of Americans wind up leaving the workforce at an earlier date than anticipated, and the COVID-19 crisis could cause that number to climb. Unfortunately, only 32% of workers have a backup plan in case forced early retirement becomes their reality, according to a recent Transamerica survey.
If you're not planning for the possibility of early retirement, you could be setting yourself up for disaster. Rather than continue on that path, come up with a viable backup plan in case your time in the workforce is cut short.
Hope for the best but plan for the worst
Since no one can discount the possibility of early retirement, the best way to protect yourself from it is to save in an IRA or 401(k) from a young age. Some people wait until their 40s or 50s to start saving for retirement, thinking they'll catch up once their income is higher and they're more settled in their careers.
But if you begin funding your nest egg at age 47, thinking that'll give you 20 years of contributions, and you're forced to retire at 61, you'll risk falling dangerously short. A better bet is to start making retirement plan contributions in your 20s, or at least your 30s, to increase your savings window.
It's also important to have a backup plan in case early retirement is forced upon you. That plan could involve:
- Getting a part-time job during retirement
- Renting out part of your home to generate steady income
- Downsizing your existing home and moving to one that's smaller and cheaper
- Relocating to a different part of the country where your fixed income can do more for you
- Moving in with your adult children to minimize your expenses
These are only some solutions you might employ should the need arise, but it's important to work through different options to get a sense of what's most feasible. Furthermore, this is something you should do in advance of retirement.
If you're forced out of a job at age 60 and struggle to find a new one, thereby kick-starting your retirement unwillingly, you may not be in the right frame of mind to make long-term financial decisions. In that scenario, you're much better off having a plan in place already.
Don't just wing it
Many people plan to work well into their 60s or even beyond. But unfortunately, that's not something any of us can count on.
To avoid financial struggles in a forced retirement situation, save for that milestone from as early an age as possible, and also put a backup plan in place. At the very least, it will give you some peace of mind, especially in light of the ongoing crisis that's upended so many people's lives and careers.