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What to Do When Retirement Comes Early

What to Do When Retirement Comes Early

Increasingly, the golden years are being delayed. According to the newly released 22nd annual Retirement Confidence Survey from the Employee Benefits Research Institute and Greenwald & Associates, 25 percent of workers said their retirement date has changed in the past year. In 1991, 11 percent of workers said they expected to retire after 65. By 2012, that has grown to 37 percent.

Trouble is, if they think they are going to keep on working they may be in for a nasty surprise. While many workers think they'll be able to work longer in their careers, Matthew Greenwald of Greenwald & Associates, said many are certain to be disappointed."Nearly half of current retirees surveyed by the RCS report they left the work force earlier than they planned for reasons beyond their control, such as health or economic changes such as job loss," said Greenwald in a prepared statement.

Welcome to the new normal, where the accidental retirement is an increasing phenom. While health issues have always had the opportunity to bump up a retirement date, the economy presents its own twist, with downsizing, mergers, and all manner of corporate shakeups that can mean you're out of a job sooner than you planned. What do you do when you have to scramble for Plan B?

Review your severance package. You might even consider asking an attorney to weigh in on it as well. Decide whether you have grounds to sue your former employer for a work related injury, harassment or other reason, points out Jonathan Gassman, a certified financial planner with Gassman & Golodny.

Assess where you are right now. "The biggest mistake is not planning ahead of time. We never know the date nor the time we might die or become disabled, but almost everyone thinks they are invincible. Expect the unexpected," says Ted Sarenski, a certified public accountant with Dermody, Burke & Brown.

Look at your expenses and separate needs from wants. You need to be able to pay for your food, clothing and shelter, all else can be cut until your situation stabilizes. Create a new budget.

Face reality. If you're 55 or older you may be viewed as unemployable because of outdated skills, too much experience, a pay scale that is unattainable at a new position, and quite honestly, just because of your age, age bias is not a myth. You may need to start Social Security at age 62 to get some income coming in sooner. However, know that the longer you delay Social Security benefits, the larger it can grow (can grow 8 percent each year through age 70), says Jim Sloan, president of wealth management firm Jim Sloan & Associates.

Will you still be protected? For health insurance concerns, determine if your employer will provide health insurance when you leave, or if you will be offered COBRA. If you're offered COBRA, explore your various options so that you will get the coverage you need and nothing more, this will help minimize your costs.

If you are under 65 years of age: If you, or your spouse or dependent have a pre-existing medical condition, COBRA is probably your best option as it provides continuation of group health coverage, and purchasing individual coverage may not be possible due to pre-existing conditions, explains Carrie McLean, a consumer health insurance expert with eHealthInsurance.com.

If you or any one on your policy don’t have any major pre-existing conditions, then it is worthwhile to shop on the individual market. Premiums on the individual market can be up to 65% less than COBRA for family plans and up to 59% less than COBRA for individual plans.

Keep in mind that premiums for individuals as they get older tend to be higher because we all tend to develop more health conditions as we age. The national average premium for a person aged 55-64 was $333/month in February, 2011, according to a study released by eHealthInsurance last year. That may still be less than a COBRA premium, so shop around.

Similarly, if you only had life and disability insurance through your job, begin searching for coverage elsewhere.

Mistakes to avoid. What you don't want to do, is cash out of your retirement plan. Although this is a quick fix to find cash, it will end up costing you big time. You will have to pay taxes on your withdrawal and an early withdrawal penalty if you are under age 59 1/2.

Unless you're a mini Warren Buffett, don't go it alone. You're already in a pickle you don't need to pile on mistakes too. If you're not sure where to turn, ask your accountant or your inner circle about financial planners.

A huge mistake after a layoff, is to put off searching for another job until unemployment insurance runs out. New employers are not interested in those who have been unemployed for a long time, it seems, says Mary Kay Foss, a CPA with Sweeney Kovar. Also, unemployment benefits are taxable on the federal tax return.

Be flexible. Consider going back to school, or otherwise get training that can lead to another job. Volunteering will give you a chance to learn new skills as well as widen your network.

When life throws you a curve ball, just swing the bat anyhow.

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Apache   |     |   Comment #1
There is one thing which may have been missed concerning this.  Companies are not stupid.  When my partner was "early retired" in his 50's with a group of other employees of his same age group. they were not fired.  Thusly they could not get unemployment benefits.  They were just thrown away and considered "retired" .  Like it was mentioned, had a very difficult time finding even part time work at their ages.  The company avoided an "Age Discrimination Suit" by agreeing to at least give the employees who were 55 and older their medical benefits.  Full pensions were ony available when they were 65 so the company got out of paying these. 

When I read that people should work until 65 or older, I think it is a joke!  Too many companies are making sure they get rid of employees before they have to pay full pensions or benefits.  They know how to play the game and the employees are the ones who suffer as usual.
jujubee   |     |   Comment #2
Most companies today no longer have any sort of defined benefit pension, so the idea that companies try to get rid of employees before their pension vests is becoming less common and will eventually disappear.

That said, discrimination against older folks in the workplace certainly does exist.