You try to do your best to plan for retirement, but what do you do when you’re forced to retire early? According to two new surveys, this happens more often than you might think. “Research from Voya Financial says that for 60 percent of retirees, the timing of retirement was somewhat or completely unexpected. And the Employee Benefit Research Institute reports that half of workers leave their jobs earlier than expected because of health issues, the need to care for a family member, job elimination or the need, at work, for skills they don’t have.”1
In order to figure out where you’re going, you first need to understand where you are now. It’s important to take inventory of your financial situation. This includes identifying all of your assets, what income you have coming in, any debts you have and the interest rates on those debts. High interest rate debt consumes a larger portion of your cash flow, so it’s best if you can reduce or eliminate debt with high interest rates. You also want to identify what expenses you have and how you’re spending your money.1
Once you’ve completed this assessment, you want to evaluate whether your cash flow is enough to cover your costs. Start by pinpointing your sources of income, i.e. retirement accounts, pensions, social security, etc. Tim Maurer, a financial advisor in Charleston, S.C. recommends that you first take a look at your retirement accounts. Then multiply the balance of your retirement accounts by 4%. The generally accepted rule states that 4% is about how much you should withdraw from these accounts on an annual basis to ensure your money lasts you 30 years in retirement. Then take that amount and add it to your other sources of income such as pensions, social security and any other sources. It’s especially important to determine what you expect to receive from social security. “You get an 8 percent bump in benefits for each year between ages 62 and 70 that you wait.” Therefore, depending on your financial situation, it may make sense for you to delay collecting social security benefits.1
After you’ve completed these steps, you should be able to see if your cost of living is higher than your income. If it is, then you can close the gap by either spending less or earning more. According to Maurer, the biggest improvement most people can make is to either downsize or move to an area with a lower cost of living. However, Maurer recommends exploring possibilities for earning a paycheck, even part-time, if you’re able. Maurer also suggests that the best way to prepare for sudden retirement is to do a trial run. “Estimate the income you’d have coming in during retirement, and try living on that amount. If you can’t, start saving more.”1
If you find yourself blindsided by retirement and are running short on funds, a reverse mortgage may be able to help you live more comfortably. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors age 62 and older to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3
1 Blindsided by Retirement? Here’s What To Do. – aarp.org, by Jean Chatzky, AARP The Magazine, October/November 2015, http://www.aarp.org/work/retirement-planning/info-2015/blindsided-by-retirement.html.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
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