Regardless of how much you plan, plans change. We call these life’s curveballs—when circumstances take you off your projected path and push you in a different direction. We talked to a couple recently where she, at 59, was laid off as a result of the COVID-19 closures. The reality is this could happen to anyone. The curveball of a forced retirement is not unique to our current environment. An employer may downsize or be sold, health could change, or you could lose career opportunities to younger employees.
While an early retirement might sound appealing, it will likely require revisiting your financial plan if retirement takes you by surprise. One of the first areas you’ll need to consider is health insurance if you’re laid off before age 65. While you may be able to get COBRA benefits through your former employer, it can be very expensive. You will need to compare it to family coverage on your spouse’s policy if available. You may also be able to get an affordable health insurance plan through the government Marketplace. Depending on your situation and age, you may have to consider taking a lower-paying job just for the insurance benefits. By age 65, seniors are eligible for Medicare; however, it is important to remember that Medicare often requires additional prescription coverage and may not include dental or vision coverage.
In your late 50s and early 60s, it is also the time you should consider long-term care insurance policies. If you had originally planned on self-insuring, you may want to consider obtaining an LTC policy or LTC hybrid policy. These policies could reduce the risk a long-term care event might deplete your retirement savings now that your retirement may last many years longer than anticipated. When we build financial plans, we plan for assets to last until the youngest spouse’s age 92. For our couple, that could mean her retirement would last more than 30 years.
Other adjustments may include recalculating how much the working spouse is saving for retirement. Both spouses were likely saving before she was laid off. Now that she is no longer drawing a paycheck, she is also no longer contributing to their retirement savings. The working spouse may need to consider working longer. Additionally, they may consider a life insurance policy on the working spouse. Should something happen to the sole breadwinner, life insurance may be able to bridge the gap between the loss of income and receiving Social Security benefits or retirement account withdrawals. An important thing to remember when looking at your retirement account balance is that not all of that money can be spent. Both your 401(k) and traditional IRA funds will be taxed at ordinary income rates upon with withdrawal.
Higher taxes and inflation may also affect your retirement lifestyle. When accepting a forced retirement, you may need to reconsider the variables used in your financial projections. At Henssler Financial, we generally use an inflation rate of 4.6%, which is higher than actual inflation. Finally, you should also reconsider your asset allocation of your investments. Your investments may need to be positioned for earlier withdrawals or positioned for higher growth.
If you have questions on how to adjust your financial plan to handle one of life’s curveballs, the experts at Henssler Financial will be glad to help: