Retirement planning: What happens when you are forced to retire early?
When life throws you a curveball, saving for retirement becomes a more challenging goal for Americans.
Financial expert and author of ‘Everyday Millionaires’ Chris Hogan said Americans don’t have enough saved for an emergency in case you’re forced into early retirement due to health issues.
“Best way to be prepared is to have a plan. It’s why I encourage people to have a 3-6month emergency fund that they just set aside and you can just keep that liquid in a money market account and it’s available if life were to happen,” Hogan told FOX Business’ Maria Bartiromo on Tuesday. “There are all kinds of plans and options out there. Don’t sit back and not be informed. Engage with an insurance professional so you can understand what’s out there. Or what are some gaps in your coverage that you may need to purchase an additional policy to be able to protect yourself and your family.”
According to a new study from the Center for Retirement Research (CRR) found that nearly 37 percent of people ended up retiring earlier than planned due to a health scare.
Hogan believes that starting to save as early as possible for a rainy day is essential. Whether it’s a 401k or a 403b plan, both plans may ease the retirement anxiety especially when it involves a health issue.
“Long term care is very, very vital and important and I encourage people to have that in place prior to age 60. Beyond age 60, the price of it can really go up,” he said. “Opportunity to need nursing home care or in-home care is something that can really, really happen.”
As for those who have large amounts of debt to pay back before thinking of retirement, Hogan said, there’s a way.
“First thing I tell people is to get serious about getting out of debt. When you get out of debt, you actually free up your money. You give yourself a raise, and it’s really important for student debt not to just hang out like it’s a relative, but you actually treat it like an enemy,” he said. “You get very, very serious. You downgrade lifestyle. You take on extra income. You do whatever is necessary to attack that debt.”
The CRR cites three main reasons people are forced to retire early.
The first is poor health conditions. While you may plan to work until the age of 65 or 70, an illness or injury could prevent that from happening. You would lose months or years of income and be forced to tap into your retirement savings accounts long before scheduled.
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You might also have large medical expenses that drain your savings faster than anticipated.
The second reason may be a cause in your employment changes. If you’ve been laid off or your company goes under, you’ll have to decide on seeking new employment or early retirement. Those who aren’t able to find a new job quickly may be left without a choice.
The third cause is familial shocks. A divorce, poor spousal health or a dependent parent moving in could end up putting a strain in your finances.