I’m Unexpectedly Retired, Now What?


I’ve committed my career to helping people plan for retirement. During the planning phase, I help individuals imagine their ideal retirement scenario and then create a comprehensive financial plan that makes that imagined scenario a retirement. But the thing about life is that it rarely—if ever—goes as planned. Over the past two years, I have worked with several clients who unexpectedly found themselves retired earlier than they anticipated due to either a layoff or health concerns.

If you find yourself out of work just a few years before you intended to retire, early retirement may be a great option for you. Here are some things to consider.

1. Update Your Financial Plan
I’ve come across too many people who were still working only because they thought they needed the money. If your comprehensive financial plan is up to date, then you will know exactly how much money you will need in order to keep a certain lifestyle when you retire. If you find yourself in a position where getting a new job might not be an easy option, visit with your financial advisor to see where you stand in your financial plan. The answer may surprise you! If you were still working because you truly loved and were fulfilled by your job, that’s one thing. But if you were just counting the days until you thought you could retire, there may be options to make your financial plan work now. That’s the value of a financial advisor and a comprehensive financial plan, both exist to help you when you really need them.

2. Review Your Budget
Loss of income is the biggest adjustment nearly everyone must make when they retire. If you weren’t planning to retire, that shock can be even greater. After you’ve reviewed your financial plan, the next step is to review your budget and understand where your money is going. Oftentimes a sense of urgency makes the items we once considered essential a little less “essential.” Look for ways to reduce your monthly spending while, at the same time, look for other small sources of income. Could you sell some things that you have been holding on to for too long? Does your gardening hobby offer a chance to make some money at a local farmer’s market? Budgeting is the quickest and easiest way to give yourself a raise. In a comprehensive financial plan, your investments will adjust as you get closer to your intended retirement. This means your portfolio will get more conservative as we work to protect the next five years of money you will need in retirement. But if an unexpected event causes that retirement age to come sooner, budgeting and a temporary downgrade of your lifestyle will likely see you through the few years you need to get to your planned retirement age.

3. Get Creative
There are options that will allow individuals to take from their retirement funds without incurring major penalties for early withdraws. For individuals who are under 59 ½, a 72t distribution may be one of those options. 72t distributions allow individuals to take a regular disbursement from their IRA without paying a penalty. One word of caution in using this option, it is not a stop-gap measure. Once you start a 72-t distribution, it must continue until the funds are exhausted. One creative way to work around this is to determine exactly how much money you will need monthly and then adjust your IRA accordingly. For example, if you have $1 million in an IRA and begin a 72t distribution, you may receive payments of $6,000 per month. But if you only need $3,000 a month, you can achieve that number by rolling half of your savings into another IRA. It can be done without tax penalties, and now your distribution will only be the $3,000 you need monthly. Remember, all investment changes have tax implications, so be sure to consult a professional before making significant changes.

4. Take What Is Yours
An illness or a layoff can be a tumultuous time. If this occurs, you will feel some emotion that will likely cloud your decision-making temporarily. This is why it is important to have an impartial, objective advisor helping you during this time. One of the most important things to do when you enter early retirement is to account for the benefits you earned while with your employer. Make sure to roll over all pension and 401k funds as quickly as possible. This will insure you have control over the benefits you worked for. A rollover can be a much simpler process than a withdraw and does not require employer approval or penalties.

If you find yourself in an unfortunate situation where you aren’t currently working but still have a few years until you planned to retire, give me a call. We can walk through the four steps above and find an option that allows you to live the life you hope for while focusing on the financial goals you have set for yourself.

By Chris Perry