Preparing for an Early or Unexpected Retirement

Handwerk Consulting |

More people are retiring earlier than you might assume in the United States.

Retirement planning is unquestionably a long-term effort that takes years of saving and tweaking to be successful. It's not a "fix it and forget it" situation. However, no matter how well you plan or save, health concerns, company downsizing, a global epidemic, or just personal desire may force you to retire early or unexpectedly.

Is it typical to retire early? It's possible that it's more prevalent than you believe. According to a new Allianz Life research, more than half of Americans retire earlier than planned and for causes beyond their control. Even more intriguing is the fact that this information was gathered before to the outbreak of the COVID-19 virus, when major corporations and organizations in financial distress began offering voluntary buyouts and early retirement packages to their employees. As a result, people around the world may retire sooner than expected.

So, what can you do to prepare for a surprise retirement? Of course, before making any life-altering decisions, you should always check with your financial advisor, but here are some things to consider if you find yourself in this situation.

1.  Plan Your Exit Strategy

Leaving the workforce entails much more than simply packing up your desk and walking out the door on your last day. Aside from your consistent paycheck, you'll be giving up additional employer-provided benefits like health insurance and matching contributions to retirement accounts. You'll need to time your exit strategy carefully if you want to earn all of your perks, especially if you're in a profit-sharing scenario. Do you have any paid time off that you can use? If that's the case, when will you be able to do so? Before you leave, make the most of your benefits. After all, you worked hard for them.

2. Consider the Tax Implications of Retirement Plan Offerings

The structure and value of retirement plan options might differ significantly from one company to the next. If you're retiring willingly, meaning you weren't offered a buyout or an early retirement plan, you'll most likely have the option of taking a lump amount or phasing down your retirement benefits over time. Of course, you'll have to weigh the pros and cons of each option in relation to your other retirement income sources and how the tax treatment will effect your after-tax take-home pay. For example, if you anticipate a larger income in the future, you may prefer to take the lump sum now rather than later, when the additional income may push you into a higher tax band.In reverse, if you anticipate having a lower income later, you may decide phasing your benefits out is a better option.

3. Align with Your Spouse 

The lifetime of your retirement savings is primarily determined by your ability to manage your income and minimize your tax liabilities. As a result, if you're married and share your income, you'll want to match your retirement plan options to theirs. If you plan together, you'll have the best chance of increasing your long-term income, boosting your social security benefits and managing taxes over time.

4. Decide on Healthcare Coverage

You'll want to ensure you have health insurance in place so you don't go without coverage. If you aren't yet eligible for Medicare, you must consider whether it is better to buy your own insurance or continue to be covered by your company under COBRA. Keep in mind that COBRA coverage is only accessible for a short period after quitting your job, so make sure it covers the time gap you'll need ahead of time.

Taking the Leap

Early retirement may not be in your plans, but external factors beyond your control may force it. If you find yourself in this situation, make sure to think about all of the short and long-term ramifications of your choices. Nobody wants to outlast their assets or become a financial burden to their loved ones.

Curious if an early retirement could be in the cards for you? Contact one of our trusted advisors today to learn about your options.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.