How to Cope With a Forced Retirement

Health problems and layoffs cause many retirees to leave the workforce earlier than planned.


Some people have an age or date in mind when they would like to retire. But when you retire is not always a choice. Many individuals find themselves forced into retirement earlier than they originally planned to leave their jobs.

Less than a quarter (23 percent) of workers plan to retire before age 65, but the majority (68 percent) of current retirees ended up retiring before reaching age 65, according to a recent Employee Benefit Research Institute survey. A quarter of current workers are planning to retire at age 70 or later, but only 7 percent of current retirees ended up working until age 70. Almost half (45 percent) of retirees say they left the workforce earlier than planned, typically because of a health problem or disability (63 percent), a downsizing or business closure (23 percent), or having to care for a spouse or another family member (18 percent).

[See 10 Essential Sources of Retirement Income.]

Unexpected early retirement generally means you will need to make some major adjustments to your retirement finances. Here's how to recover from an unplanned retirement:

Take stock of what you have. Evaluate all the savings and income sources you currently have and determine if they will provide enough income to pay all your monthly bills. "Take a look at the three-legged stool of retirement—Social Security, a pension, and the assets that you have saved, and compare the income you will get from those three sources to your current living expenses," says Tim Maurer, a certified financial planner for Financial Consulate in Hunt Valley, Md. "If you don't have enough to cover your expenses, then you have to find a way to reduce your living expenses or extend your career." If you are under age 65 and not yet eligible for Medicare, your first priority should be finding health insurance. Although most of the options will be expensive, consider buying back into your former employer's health plan using COBRA, joining a spouse's plan, or shopping around for individual coverage in your area.

[See How to Get Retiree Health Insurance Before 65.]

Revise your retirement spending strategy. If you were originally planning to spend 4 or 5 percent of your savings each year after retiring at age 65 or 70, you might have to adjust that percentage downward to reflect a longer retirement. Also, keep an eye on taxes as you begin to spend down your retirement assets. "If you are over age 59½, there is no penalty for retirement account withdrawals, but you are still paying taxes on those withdrawals," says Lea Ann Knight, a certified financial planner for Garrison/Knight Financial Planning in Bedford, Mass. "Try to spend from your taxable accounts first." Withdrawals from retirement accounts aren't required until age 70½.

Sign up for Social Security. Retirees who are at least age 62 have the option to begin claiming Social Security payments. However, your payout will be reduced if you claim at this age. The amount of Social Security you will receive increases for each month you delay your start date, up until age 70. Some people spend down their savings first in order to qualify for larger Social Security payments later in life. "Even if you are retried, you may want to delay taking Social Security if you have other ways of paying for your expenses," says Knight. "You don't want to penalize yourself based on a short-term need for cash and get stuck with that lower amount for the rest of your life." If you later find a job after claiming benefits, you may be able to suspend future Social Security payments, then claim a higher amount later due to delayed claiming.

[See 10 Places to Retire on Social Security Alone.]

Begin your job hunt. Finding a new job can be difficult for older workers. The average duration of unemployment for workers age 55 and older was 53.6 weeks in April, more than three months longer than the 39.4 weeks the typical younger person looked for work, according to the Bureau of Labor Statistics. And older workers who do find new jobs must often accept lower-status positions that pay less, according to Urban Institute research. However, even a part-time job can significantly improve your retirement finances. "If you could work 20 hours a week and bring home $10,000 or $15,000 worth of low-stress income, there's no better way to improve your income security and continue to be productive," says Maurer.