Forced Into Retirement Suddenly? Here’s How To Prepare for the Worst

Retirement is a time for relaxation and enjoying the fruits of your labor—or is it? 

According to the latest Prudential retiree survey, 55-year-old Americans are woefully unprepared for retirement and have median retirement savings of just $55,000. And if their retirement is upended by an unexpected event, they’re in real trouble.

From job loss to health crises, there are many events that can mean you’ll be forced to retire early. Here’s how you can prepare and safeguard your retirement plans against the unexpected.

Experts recommend setting aside at least three- to six months' worth of living expenses in a separate account for emergencies. 

This fund works as a buffer against job loss, unexpected medical bills, or home repairs that could otherwise force you to dip into your retirement savings.

The reason to keep it separate is so that you aren’t tempted to spend it on things that are not a true emergency.

If your company suddenly downsizes or you’re unexpectedly laid off near your retirement date, don’t hesitate to apply for unemployment benefits. Unemployment benefits can take time to process, so applying as soon as possible is recommended.

While these benefits won’t equal your previous wages, they can provide income support during this transition period.

Health care costs can make up a large portion of your expenses during retirement. The average couple will need over $300,000 to cover medical expenses during retirement.

If you retire before becoming eligible for Medicare at age 65, you have options. You may qualify for COBRA coverage from a former employer or private health insurance plans through the healthcare.gov marketplace.

Some people take a hands-off approach to investing. They select a target fund for their investment portfolio and leave it be.

As you approach retirement, review your investment portfolio to ensure it aligns with your risk tolerance and current retirement timeline. Consider diversifying across asset classes to reduce your risk level as you approach retirement.

An annuity is an investment product that can offer a stable source of cash flow during retirement. You pay an insurance company upfront, and in return, the company provides income for the remainder of your life. 

There are different types of annuities, and most of them can be tailored to your specific financial needs.

You can start receiving Social Security benefits as early as age 62. However, delaying until your full retirement age — typically between 66 and 67, depending on your birth year — can significantly increase your monthly benefits.

If you can wait until age 70, you will reach the maximum benefit amount, which is 130.7%. This strategy can provide you with more cash flow during your retirement years.

There are exceptions to this recommendation, such as if your life expectancy is below the average or if you’re unable to pay your monthly bills without going into debt.

Adding cash to your monthly income can help reduce stress when you’re preparing for an unexpected retirement. Look at part-time work, freelancing, consulting gigs, or turning hobbies into income streams to supplement your retirement savings.

Generating additional income benefits you before retirement and may also provide a sense of fulfillment as you transition into retirement.

Most adults spend 20% to 30% less than they did while working. This figure should help you estimate your retirement income needs and create a budget. You’ll say goodbye to commuting, work attire, and other costs.

Don’t forget, though, that during retirement, you may increase your spending on things like health care or hobbies. Make sure to account for your changing needs and priorities over the next few years.

Your housing is often one of your biggest expenses. Downsizing your home could help reduce your cost of living.

You may also save time and money on cleaning, yard care, and utilities. If you’ve already paid off your mortgage and don’t want to move, you may be able to access the equity in your home through a HELOC or reverse mortgage.

Hobbies are great for staying active during your golden years. Unfortunately, common retirement activities like playing golf or traveling can come with a hefty price tag.

If you’re looking to conserve your retirement funds, explore new, less expensive hobbies like gardening, playing chess, or joining a local walking group. New hobbies are also a great way to stave off loneliness and make new friends.

Even if your retirement date is coming up soon, there is still plenty of time to make extra money to pad your savings or prepare for an unexpected layoff.

Many people find working with a financial advisor helpful for retirement planning. A fee-only financial advisor can analyze your investments, suggest tax-efficient ways to withdraw from your retirement savings, and help you develop an estate plan.

Preparing ahead of time means that you’ll be able to enjoy your retirement whenever it comes — whether it's unexpected or not.