Forced into early retirement unexpectedly? Now what?

There may be many job opening today, but simultaneously people are being forced into early retirement. They aren’t necessarily looking to retire early, but unemployment when you are in your 50s can quickly become permanent. Are you prepared if this happens to you?

More than 45 percent of those people aged 55 and over tend to “long-term unemployed” — those who have been unemployed for 27 weeks or longer according to a 2014 report from AARP. The report goes on to suggest that extended unemployment, coupled with age discrimination and other barriers, can add to the challenges older workers face in finding a job. Even older jobseekers who do find work may have trouble recovering financially. Many end up accepting jobs at lower pay, with fewer hours, and with limited benefits. Job loss during the pre-retirement years can undermine financial security now and into the future.

If you are forced to retire early, will you be prepared? If you retire early — intentionally or otherwise — your two biggest expenses are likely going to be your rent/mortgage and health insurance.

Your Home
Once you lose your regular paycheck, the cash stops coming in, but it will continue flowing out. For most people, their biggest expense each month is their residence. How are you going to continue making your monthly mortgage payment when you are no longer receiving a paycheck? Ideally your house will be paid off before you retire, this makes funding your retirement much simpler. However, many people are still making payments on their homes after they retire. Here is a chart, courtesy of the Consumer Finance Protection Bureau. The light green line tracks the percent of homeowners still carrying a mortgage after their 65th birthday.

home ownership

As you can see, since the beginning of the century, the percent has increased dramatically from 22 percent to 30 percent as of 2011. From 2001 to 2011, the median amount older homeowners owed on mortgages increased 82 percent, from approximately $43,400 to $79,000. Given that nearly one-third of those people, 65 year and over, had a mortgage in 2011, and that that the average outstanding balance for older Americans was about $60,000, there’s good reason to expect that many people are entering forced retirement in their 50’s with a fairly sizable outstanding mortgage balance.

According to the 2011 census, most retirees have about $171K in net worth; that includes the equity that they have in their homes. People in the 55 to 64 age have roughly $144K in net worth. Presumably that’s nowhere near enough to either have their home paid off or enough cash completely pay off their home.

If you in this unfortunate situation, hopefully you have enough cash on hand. Ideally you would have enough cash to pay off the entire remaining balance. Most folks forced into early retirement in their 50’s are likely younger than 59 1/2; that’s the age when you can start accessing your 401(k) and IRA investments without incurring fees. Since most people have the bulk of their investments in retirement accounts –money that can’t easily be accessed — you will either need to have enough cash on hand to either fully pay off your mortgage or at least be able to continue to service your debt; making monthly payments. (Of course, those monthly mortgage payments includes taxes and property insurance.)

Health insurance
Unless your former employer is willing to allow you to remain on the company’s health plan, the monthly health insurance premiums will completely become your responsibility. Premiums on individual plans may be higher than group plans. These costs can easily exceed $10,000 for a married couple in their 50’s, even under the Affordable Care Act. The health care coverage through any individual plan (via the Affordable Care Act or otherwise) is typically inferior to large group coverage; many health care providers exclude individual plans from the insurance plans that they accept. This could leave you with fewer choices among health care providers. If you can, try to obtain insurance from a large group plan. With the advent of the Affordable Care Act, fewer fraternal and alumni organizations offer group health insurance for their members.

If you can’t satisfy all of these expenses each month, you probably need to you make changes. Presumably your failed job search also included not being bale to find acceptable employment for less than you are worth. Given that, you may need to reign in your expenses, which could mean selling your house and buying a less expensive home. Remember, you will be eligible to receive your Social Security retirement benefits when you reach your 62nd birthday. However, those benefits will only be a subset of the total benefits that you would be eligible for when you reach your Full Retirement Age – somewhere between 65 and 67.


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