Many previously retired Americans have been forced by money problems to unretire. There is nothing wrong with voluntarily reentering the workforce because you are bored with your retired life. But being compelled to do so because you cannot pay your bills is much worse. Here are four factors that put you at risk of experiencing a forced unretirement.
1. Retire with debt. Monthly debt payments kick you even harder when you are retired on a fixed income. A mortgage payment may be the worst, particularly if the retiree has purchased a more expensive house than he or she can comfortably afford and cannot escape from the mortgage obligation.
2. Retire without a rock-solid retirement income plan. Many retirees cannot live only on pension or Social Security benefits. They need to generate income from other retirement assets. Retirees need a plan for how to convert paper wealth into a sustainable lifetime income that is not destroyed by inflation. Making random liquidations of investments in a volatile market is not a plan.
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3. Retire while supporting adult children. It can be quite difficult to stay retired while having college age or adult children on the family payroll. Tough choices are needed in this situation and the best time to make them is before you stop working.
4. Retire with an inadequate retirement emergency fund. Social Security or pension benefits may be adequate to cover routine expenses, but you also need to plan for a new roof, replacement vehicle, or a major health event. How will you pay for those? If the answer is to liquidate some of your nest egg, that will impact your entire retirement income plan. This is why a retirement emergency fund is so important. If you don’t have one, imagine having to return to work to pay for a major home repair.
Some folks are so eager to retire now that they are willing to assume these risks of a forced unretirement. The final risk they are overlooking is that they may be unable to return to the work force for health reasons or because there is no job for them to do. Instead of a forced unretirement, they are facing poverty.
Mark Patterson is an engineer, patent attorney, baby boomer, and author of The Failsafe Retirement System. He blogs on matters of personal finance and retirement planning at Tough Money Love and Go To Retirement.