For most Americans, one of the biggest threats to their financial security in retirement is the possibility that they'll have to leave the working world earlier than expected. Unfortunately, according to recent research from The New School, the COVID-19 pandemic could force this fate on an estimated four million Americans.

In fact, The New School's data from the start of August shows that 2.9 million older workers had already involuntarily left their jobs since March due to the economic effects of the coronavirus. Sadly, their decreased job prospects could mean they may never come back. Even worse, if exits from the labor force continue at the same pace, another 1.1 million older workers may be forced out of their jobs over the next three months, leaving a total of around four million older Americans at risk of involuntary premature retirement if they can't quickly find work. 

If you're one of these Americans, or fear you might become one, it's imperative you take steps to mitigate this retirement disaster ASAP. 

An older woman working stocking shelves

Image source: Getty Images.

Why is being forced into early retirement so damaging?

When you're forced to retire ahead of schedule, you could experience serious financial damage for a number of reasons, including the following:

  • You'll have less time to invest for your future, which can be an especially big problem as you lose the chance to make catch-up contributions to tax-advantaged retirement accounts (you're eligible for them only once you're 50 or over). 
  • You will have to live on your savings for a longer period of time, since forced early retirement means more years of it. If you planned to retire at 66 and must retire at 62, you'll start drawing from your savings account four years ahead of schedule. And with many people planning to continue working well into their 60s or even throughout retirement, you may find yourself facing many more years of living on your savings than you had originally anticipated. 
  • You may have to claim Social Security earlier than planned if you cannot afford to live on the amount you can safely withdraw from your retirement accounts. This can cause a reduction in the size of your monthly benefits due to early filing penalties and a lost chance to earn delayed retirement credits. Once you claim Social Security early, you are stuck with the reduced checks for life. 
  • You may need to pay more for health insurance if you lose your employer-sponsored plan and need to use COBRA or secure individual insurance until you become eligible for Medicare at 65. 

With your finances damaged in so many different ways, there's a real risk that you'll either run through your savings too soon, experience a decreased quality of life in retirement, or both. 

How can you cope with involuntary early retirement? 

If you have to leave work before you're ready, it's important to adjust your expectations for retirement ASAP.

Unless you can get back on track by returning to work, you may have to accept you'll have less income than planned in your later years. If that's the case, the sooner you change your spending habits, the easier it is to preserve whatever nest egg you do have. This means making and living on a careful budget, making sound investment choices to ensure you're exposed to an appropriate level of risk, and looking for ways to cut living expenses such as by relocating or downsizing.

Forced early retirement is often a disaster, and there's no sugarcoating it -- retiring before you're ready can cause financial pain. But if you react quickly, you can ensure your nest egg lasts and you still have a comfortable retirement, even if it's not exactly what you were expecting it to be.