5 Ways to Prepare for an Unplanned Retirement

Since retirement can happen unexpectedly, you should have a backup plan.

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[Find out why Career Changers After Age 50 Are Permanently Worse Off.]

Choose your second act. But despite lower pay, older employees often report feeling happier in their new jobs. Nearly two thirds of workers reported less stressful working conditions in their late-life second career, and 45 percent said their new job allows a flexible work schedule, according to the Urban Institute study. Only 27 percent said they enjoyed a flexible schedule in their former career. "They are giving up money and benefits, but they're getting a less stressful job and probably a job they find more meaningful," says Richard Johnson, a principal research associate at the Urban Institute and coauthor of the study. The more relaxed schedule may be partly due to relinquishing management responsibilities. Only 14 percent of the employees worked as managers at their new job, compared with 22 percent in the past. The share of workers who were self-employed doubled from 12 percent in their initial career to 24 percent later in life.

Get back in business. Americans from 55 to 64 have long been one of the age groups most likely to start their own businesses. Baby boomers have had a higher rate of entrepreneurial activity than those under 34 in every year between 1996 and 2007, according to a recent study by the Kauffman Foundation. Dane Stangler, a senior analyst and author of the study, says baby boomer entrepreneurship is likely to continue throughout the recession, both out of necessity after a layoff and because many people have a desire to work for themselves. Many baby boomers also have the relevant experience and a deep social network that helps new businesses to thrive.

In 2007, Ron Igielinski, 55, of Memphis accepted an early retirement package from Chrysler, where he was a sales executive, and started his own business, RHI and Associates. "I really wasn't ready to retire, but if I didn't take it, I possibly could have been let go through normal layoffs later," he says. Igielinski employs 16 retirees from the auto industry to work as product specialists at automotive events, where they share their extensive knowledge of cars. Although Igielinski doesn't expect his business to turn a profit for at least another year—and his salary is considerably smaller than before—he's happier with his second career. And one of his biggest customers is his old employer, Chrysler. "I had thought for quite a while about going into business for myself," says Igielinski. "The freedom of being your own boss, establishing your own policies, and picking and choosing what geographic area you want to operate in . . . I don't think there's anything better."