Many people dream of early retirement, but some have no choice.
For example, air traffic controllers perform a job that is so demanding, stressful and consequential that they are required by law to retire at 56.
While that sounds great on paper, they're forced to retire 3 1/2 years before they can tap their 401(k) plans at age 59 1/2, six years before they're eligible for Social Security at age 62, nine years before they're eligible for Medicare at age 65, and 11 years before full retirement age at age 67, when they can collect full benefits.
This requires a completely different level of strategy than the average retiree will ever have to deal with. If you've signed an employment contract that includes mandatory early retirement, here's what you need to consider.
Start by getting specialized help early so you can customize your plan
Even if you're on your way to a pretty good retirement that ticks most of the usual boxes, it would be wise to invest in the services of a professional adviser. But if you're dealing with the flood of variables that come with mandatory retirement, you just can't go it alone.
"I don't believe retirement planning is a do-it-yourself project," said Eric Mangold, founder of Argosy Wealth Management, an independent financial planning firm with over $1.2 billion in assets under management. "If you're in a job that requires early retirement, it's a prudent move to sit down with a qualified financial professional."
Help from any qualified professional is better than a plan you scribble down on a loose sheet of paper, but you should seek out a counselor who specializes in your situation.
Downshift Financial, for example, is a fee-based trust firm that specializes in early retirement, partial retirement, and starting non-profits or other passion projects before reaching full retirement age.
Sites like Wealthtender can help you find a qualified early retirement professional in your area.
The Big Three: Your Nest Egg, Social Security and Health Care
Retirement comes with three critical and non-negotiable age-based milestones that you'll need to plan to see through if you're forced to leave work early.
Move some of your money out of pre-tax accounts
Until you're 59 1/2, you can't touch pre-tax retirement accounts like traditional 401(k) plans and IRAs without paying taxes and hefty penalties. If your employer offers a company match, you should max it out in almost all cases, but those with mandated early retirement should consider diverting at least some post-match contributions to a Roth IRA.
Because Roth contributions have already been taxed, you can withdraw your contributions—but not your earnings—at any age without penalty. Your earnings will continue to grow tax-free. This can provide a source of income to tide you over until you're old enough to tap into your 401(k) or IRA.
Plan when to take Social Security — and what to do while you can
Because the SSA reduces your payments for early claims and increases them if you delay retirement, deciding when to take Social Security is always one of the biggest and most consequential choices any retiree will make.
But because you're not eligible until you're 62, regardless of when your job says you have to retire, those who plan to retire early must have enough income to see them through at least the eligibility age.
Bridge the gap between your employer's coverage and health care
Employer-based health insurance has always been one of the things that makes a good job a good one—and if you leave it before you qualify for Medicare, coverage is expensive.
"The big question about retiring before age 65 is, what are you going to do for health benefits?" Mangold said. "Given that Medicare eligibility doesn't start until age 65, what are you going to do to close that coverage gap?"
One of the best options is health savings. HSAs are a type of pre-tax savings account that people with high-deductible health plans can use to pay for qualified medical expenses. One of the most versatile accounts you can open, HSAs have a triple tax advantage, meaning contributions are tax-deductible, growth is deferred, and you can spend the money tax-free. Additionally, you can use your HSA for qualified pre-retirement expenses and then bring the account into retirement with you.
You're retiring from your job — but what are you retiring to?
If you know the sun will set early on your career, you need to plan well in advance how much money you'll need to see you through an even longer version of the extended modern retirement.
“A good exercise would be to understand when you retire how much money you will have from all your sources of income, such as pensions, investments, rental income, Social Security, annuity strategies, etc.,” Mangold said. “Then you'll want to know how much money you have for expenses. If your projection shows that you have more money coming in than spending, you may be on the right track. If your projections show that you don't have enough money to cover your lifestyle and living expenses, you may need to find another job until the numbers are in your favor.”
But even if you have enough of a nest egg to call it quits when your job calls for it, you might not feel like fishing just yet.
"Maybe you're not ready to fully retire, even if your employer requires it, so what are you going to do for the rest of your life?" said Nancy D. Butler, CFP, financial services professional, author, motivational speaker and founder of Above All Else, Success in Life and Business. “There may be courses you can take during those working years to qualify for your second career. Or working part-time at another job can give you the experience you need to quickly slide into a new job.”
0 Comments