Forced retirement has grown quite common these days. A large number of baby boomers are facing this situation and can be equally traumatic as divorce. A forced retirement may lead to myriad financial problems and may also impact your goals for the future.
In a recent survey, it has been found that around 45% of retirees had stopped working earlier than they expected. The main reasons cited for forced retirement were:
- Poor health
- Company downsizing or closures
- Providing care for spouse/family member
How to deal with the situation:
Here are few tips for you to deal with a forced retirement:
Save some money and be ready: In order to avoid sudden hiccups when faced with a forced retirement, you should make sure that you save enough money at a local bank to cover your basic needs for the next 6 months at least. This way, you will get some time to adjust to the situation and may get another job (may be part-time for yourself). Also, experts suggest that the lower your mortgage payments, the better you will be able to manage such situations. So, when you take out a loan, make sure that you pay more and pay it off early or you go for a short term loan (for example: 15 year loan).
Go for an early Social Security: After a forced retirement, you may face certain obvious questions such as whether or not you should go for an immediate social security income, live on your savings or take distributions from the retirement plan. If you’re facing problems in paying off your everyday bills, you can opt for Social Security benefits at a reduced rate. When you return to the workforce, the system and payment calculations won’t penalize you. It will adjust automatically.
Avoid tapping money from your retirement plans: You may be in a tricky situation if you tap money from your retirement accounts once you’re faced with a forced retirement. It should be kept in mind the government will charge you a penalty of10% on early withdrawals from tax-deferred retirement savings before you turn 59½ years of age. If you’re a forced retiree and haven’t attained the required age, you can go for substantially equal periodic payments (SEPP) so that you can take out the money from your retirement plan without facing any the penalty.
Take help from a professional: A sudden forced retirement will leave you quite a number of questions. Also, it may lead to various financial consequences. In order to deal with all these, you will require loads of patience, know-how, and personal and professional help. You should be proactive and develop strategies which will help you in adjusting to the situation.