Amy & Dan Smith's Planning for Life: Your Retirement Plan B

Take the time to design an alternative retirement plan should retirement come earlier than expected.

Imagine this. You’ve spent decades working, saving, and planning for your version of the ideal retirement. Your company was just acquired, and your boss is now strongly encouraging you to take an early retirement – five years before you’re ready.

So, What Now?

Well, first recognize that you’re not alone. Less than a quarter of American workers plan to retire before age 65, but almost half end up doing just that, according to the Employee Benefit Research Institute’s 2014 Retirement Confidence Survey. And most of them retire early through no choice of their own. The reasons vary – a personal or family health issue, loss of a job, burnout. The good news is you don’t have to be a victim of your circumstances should this happen to you. But, you will have to make some adjustments.

That retirement plan may need to be revised to account for poor health, higher expenses, lower income, or simply having to stretch your nest egg over a few additional years.

Here’s what you can do to help yourself rebound financially and find a new path to the retirement you envisioned for yourself.

Adjust To Your New Normal: The retirement transition can be difficult for anyone, but especially so for those who feel unprepared. During what may be a stressful time, it’s important to step back and take stock before making rash decisions. You should:
Breathe: Don’t panic and make a quick decision you might regret, like immediately filing for Social Security, or putting everything on credit, which could land you with a lot of high-interest debt later.

Get Health Insurance: If you’re under 65 when you leave your job, your first priority should be finding health insurance since you likely are not eligible for Medicare. You may be able to join COBRA, a spouse’s plan, or find coverage through an Affordable Care Act healthcare exchange.

Evaluate Your Savings And Income Sources: These include retirement assets, spouse’s income, Social Security, pensions, rental income, disability or life insurance policies. You’ll need to determine if those sources can cover your current living expenses.

Think Twice About Social Security: Deferring Social Security Benefits typically increases your payments, so it may make sense to spend from other savings accounts first, although you’ll need to account for taxes and potential early-withdrawal penalties if you use your retirement accounts. But if you really need a source of reliable income, talk to your financial advisor about applying for Social Security benefits sooner rather than later. He or she can help you determine the best withdrawal- and filing-strategy for your new circumstances.

Revise Your Spending Strategy: A long retirement means your savings must last longer than originally intended, and you’ll have fewer years to fund it; so it’s critical to create a new budget to match your income. Look carefully at each essential and discretionary expense, and determine where you can make adjustments to save costs. Certain adjustments may be easier, now that you have more time to plan meals and cook for example. If you were originally planning to spend 4 percent or 5 percent of your savings each year after retiring, you may need to adjust that percentage downward.

Rethink Your Asset Allocation: Any time you experience a major life change, you should revisit your asset allocation and investments. Talk to your advisor about alternative sources of secure income that meet your particular risk profile.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, He has practiced law in Loudoun County since 1980.