Planning for retirement has a definite appeal. You get all psyched up for it and begin to create goals for yourself as you dream of what you could do once you retire. You start a strong savings program with an individual retirement account (IRA) or a 401(k) to obtain your desired finances for that day. Then, suddenly, you find yourself the object of a forced retirement.
A forced retirement occurs when a company decides that they can hire a younger model for less than what they are paying you. However, if based on age alone, it is technically illegal. It is occurring to about two out of three seniors between the ages of 45 and 74, according to LinkedIn. About 40 percent of all current retirees were forced into an early retirement.
Developing poor health is another way you could be forced into an early retirement. Whatever the reason, you want to avoid making any rash decisions.
The Standard Severance Package
What often occurs, even though you usually can say no, the company will offer an attractive severance package. A typical severance package may include paying your health insurance until you can get Medicare or a compensation package of some kind. They are often negotiable.Investopedia says that a standard severance package consists of one or two weeks of salary for every year at the company. Companies usually give 21 days for you to accept or reject the offer. Once you sign it, you can change your mind within seven days.
If layoff rumors start circulating in your office, Investopedia suggests not jumping ship too soon. If you do, you may miss being offered a severance package and be unable to claim unemployment insurance.
The First Thing You Should Do
Instead of taking the severance package immediately, you should contact a lawyer. There are reasons why a company cannot let you go based on age. Finance.Yahoo mentions that the Age Discrimination in Employment Act of 1967 (ADEA) prohibits age discrimination of anyone over 40. There are some exceptions, though, especially where physical health and strength are required for the job—such as for firefighters and police.Retirement can have unexpected beginnings sooner than you think. Part of your retirement planning should include the possibility of what you might do if mandatory retirement happens to you. Of course, your age will be a factor.
Examine Your Finances
Before withdrawing any money from your retirement savings accounts, sit down and find out where you are financially. Understand your financial condition, what you have available immediately, and how much you have access to in the near future, such as savings and investments. Do not include your retirement savings if you are not at least 59½. Also, if you take the severance package, figure out how long it will keep you financially afloat.Decide If You Want to Seek Another Job
Depending on your financial condition and age, you may prefer trying to get another job rather than retiring. If your expertise is in demand and you know of other companies that may want your services, consider working for them. Or, you could start your own business (if you have the funds).
Be aware that getting another job may not be as easy as you think. CapitalOne reports that only about 28 percent of retirees land a job, but 80 percent of pre-retirees intend to do so.
Wait on Taking Social Security
If you are 59½ and have retirement accounts, you should take withdrawals from them before taking Social Security benefits. If you are not that old, you will pay a penalty fee of 10 percent plus tax on any early withdrawals.The earliest you can take Social Security is age 62, but you will get minimum benefits if you take it at this age. Full benefits are available at 66 or 67 (depending on when you were born), and the maximum benefits are available when you turn 73 (75 in 2025). Poor health and not having other sources of money may make it necessary—especially if you do not expect to live long, says CitizensBank.
If you are forced into retirement because of a disability, you may qualify for Social Security Disability Insurance (SSDI) benefits. Or, you could qualify for Supplemental Security Income (SSI) benefits.
Think About a Roth Conversion
If you have a traditional IRA or 401(k), you may want to convert them to the Roth version of these accounts. You will pay tax on the converted amount, but have the advantage of making tax-free withdrawals later. You will have to wait five years before you can start making them tax-free.Downsizing May Be Necessary
When losing your job, you may find your mortgage is too big to continue paying. Consider downsizing your home and possibly getting a less expensive vehicle to make it easier to live on limited finances. NextGenWealth says that as many as 51 percent of people who retire will get a smaller home when they do.Eliminate Unnecessary Expenses
There probably are some expenses going out every month that you can do without. Get rid of these optional costs and seek to live simpler. You may not be able to put any more money into your retirement plans.Keep accurate records of your expenses and find out where you can cut corners and live more frugally. Because of your age, keep your health insurance intact, but you may want to look for a less expensive option—but you may need to use COBRA (Consolidated Omnibus Budget Reconciliation Act) for up to 18 months.
You may have enough cash available to finish off a debt or two. It may include a credit card, a car payment, a mortgage, etc. Reducing your debt will also reduce the interest you owe, enabling you to have more money available.
Being prepared for the possibility of a forced retirement helps it be less of a shock if it happens to you. When it does, talk to a financial advisor about your best options to avoid having unnecessary regrets later.
The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
