How would you deal with early retirement? What if you had to start living off your retirement accounts tomorrow, instead of having years of investment and growth left over? More importantly, what if you had no choice?
A financial advisor can help you prepare for life’s adversities, including forced retirement. Find a fiduciary advisor today.
Being forced to retire early is a frightening thought, but according to new research from Edward Jones, it’s an increasingly common problem. “Financial advisors across the industry report that 40% of their retired clients were forced into retirement,” the financial services firm wrote.
This is a pretty big number and not likely to drop anytime soon. In fact, it’s consistent with research ProPublica published in 2018, which found that more than half of all workers over the age of 50 would need to be fired at least once.
The question is: what should you do about this very real risk? According to Edward Jones, there are two things you need to do to prepare for this possibility. First, prepare your retirement account for flexibility. Second, apply the same flexibility to your own lifestyle and spending if this happens to you.
What is forced retirement?
Forced retirement is an often misunderstood term.
Officially, forced retirement refers to losing your job due to your age. This could be an official termination, meaning your employer fires or fires you. An informal or ‘constructive’ dismissal can also occur if your employer makes it impossible for you to stay by changing your job requirements or making it more unpleasant.
However, this is illegal. The Age Discrimination Employment Act (ADEA) prohibits employers from discriminating against employees over the age of 40, including forced retirement.
Unofficially, forced retirement refers to when you lose your job later in life. For example, as SmartAsset wrote in an article on the subject: “Maybe you’re 62 and plan to work another five years if your company downsizes. Your department loses its budget and you lose your job. Instead of trying to advance your career somewhere Otherwise you decide, as you would have done at 32, to retire early.” This is completely legal. As long as your employer hasn’t targeted you because of your age, the law considers this a case of bad timing and bad luck.
Most retirees generally experience informal forced retirement. They lose their jobs later in life and have fewer opportunities to find new work. So they leave the labor market and retire.
What Edward Jones recommends You do
Edward Jones recommends some key ways to tackle forced retirement. Above all, the company wrote, nearly all financial advisors surveyed suggested that “preparation, flexibility and willingness to adapt” are essential to building a successful retirement.
In addition, they suggest some specific strategies below:
Prepare for unexpected needs
Nearly a third of financial advisors report that their clients are having trouble dealing with unexpected needs. This includes cost of living increases (29%), financial support for family and friends (26%) or the need to compensate for declining investments (26%).
These are, writes Edward Jones, “the most impactful financial shocks for retirees” and they can further complicate an already difficult situation. A good way to prepare for these risks is to set aside an emergency fund similar to the one you keep during your working life, so that you can meet unexpected needs with cash, separate from the portfolio you own. depend on for your income.
Expand your insurance Wallet
Most financial advisors (52%) recommend purchasing additional health insurance for your retirement, and about half (48%) recommend long-term care insurance on top of that.
This is a way to protect yourself from potentially exorbitant medical costs. Just as importantly, depending on the nature of your supplemental health insurance, it may also provide you with some coverage between the time you lose employer insurance and the time Medicare comes into effect.
Prepare a strategy for flexibility, withdrawals and social security
When dealing with early retirement, flexibility is key. As Edward Jones writes in their findings, “budgeting and debt management are critical to helping retirees prepare for the unexpected.”
This can mean many things, ranging from cutting back on luxuries to moving abroad for a few years. Be that as it may, nearly half (48%) of financial advisors surveyed by Edward Jones emphasized that adopting a “more frugal lifestyle” is important to dealing with early retirement.
Meanwhile, another 35% recommend creating an income withdrawal strategy. This gives you a plan for managing your portfolio in regular years, and a way to adapt that plan to unexpected crises. This is rated as important (35%) as timing your Social Security benefits correctly.
Think about your work options
Finally, early retirement does not have to mean full retirement. In fact, 94% of financial advisors recommend that retirees should at least consider working part-time in retirement.
Finding a job can provide supplemental income, making early retirement more practical. With a tight budget, you may even have to dip into your savings. Additionally, almost all financial advisors (99%) note that this can provide health insurance and even just social or personal benefits.
Of course, Edward Jones also provides what may be the most unpopular dose of reality in the entire survey: 30% of financial advisors suggest that returning to the workforce means working for someone younger than you. But as long as you dare to work for someone significantly younger than you, it will almost certainly be worth it.
In short
About 40% of all retirees ended up there by being forced to retire early. This is evident from a new study by Edward Jones, but don’t worry. They have good tips for dealing with the situation. Financial advisors surveyed by Edward Jones said you can soften the blow of forced retirement by preparing for unexpected financial needs, having adequate insurance, adopting a flexible financial plan and possibly working part-time.
Retirement planning tips
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A financial advisor can help you draw up a comprehensive retirement plan. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory meeting with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you have retired because of your age, you have rights. You may want to consult a lawyer as this could be just as much of a legal issue as it is a financial one. Here’s how to deal with forced retirement.
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