Downsizing … New ownership … Health issues, either for yourself or a loved one … These are just a few of the events that can eject you from your job with little warning. You might be thinking, “That’ll never happen to me,” but according to AARP, 60% of retirees say that the timing of their departure from their employer was either “somewhat or completely unexpected.” It’s not surprising that for many in this position, the immediate emotions include anxiety, loneliness, and loss of or uncertainty about identity. It’s also obvious that financial concerns typically come to the forefront pretty quickly, as the paychecks stop and the newly retired person has to figure out how to pay the bills in this strange environment.
But the good news is that there are some specific steps you can take, both to prepare for the possibility of an unplanned retirement, and also to adapt to your new situation. I’ve worked with many clients, both men and women, who’ve been dealt this unexpected hand, and there are some proven tactics that can put you back in control and help you establish a path forward that you can feel confident about.
Planning — and Patience — Are Key
First, it’s important not to rush into any decisions. For many people faced with an involuntary or unplanned retirement, the initial instinct is to cash in their 401(k)s and other tax-qualified retirement accounts. But doing that is often a mistake, since taking money out of such plans — especially if you’re younger than 59 ½ — will generate not only a lump sum that you must pay taxes on, but also an additional 10% penalty for early withdrawal. Remember: You don’t have that steady paycheck coming in anymore; you need a strategy that isn’t based on knee-jerk responses.
Know Your Options
This is where a qualified financial planner can be invaluable. I work with clients to systematically assess their sources of income, make rational decisions, and establish priority-based strategies. For example, if you’re 62 or older, you may want to apply for Social Security benefits. If you’re too young for Social Security, we’ll look at your 401(k)s and other tax-qualified plans to see if you qualify for a tax-free rollover to a traditional or Roth IRA. If appropriate, we’ll calculate an annual withdrawal from your IRAs and other tax-qualified accounts to provide income while taking into consideration the tax consequences. If we discover gaps between your funding sources and your basic expenses, we’ll evaluate various alternatives for filling them.
Maybe you’ve got a hobby that you can convert into a side business. Maybe you can do some consulting, based on the work you were doing before retirement. Maybe you can secure a part-time gig to provide a little more cash flow. Maybe you can sell your home and downsize to something that meets your needs but requires less monthly upkeep, freeing up cash for other uses.
The point is, there are always options. Too often, though, the shock of being forced into terminating employment creates a crisis mentality that leads to poor decisions. A qualified, professional financial planner can help you take that all-important step back in order to regain an objective view of the situation.
If you or someone you care about is facing an unexpected retirement, please let me know. I can help with setting a secure course for the future.