Older workers are still suffering in the aftermath of the Great Recession. More than half the people aged 50 and older who participated in a recent AARP survey said they had either experienced or witnessed age discrimination in the workplace. Yet four out of five Americans over 50 say that they are going to have to delay their retirement plans and work well into their golden years. These two factors together have created a crisis for baby boomers.
Companies looking to ditch older employees can be creative in the ways they try to avoid age discrimination claims. Here are 11 of their sneakiest ploys.
1. Job elimination. One of the most common excuses used to get rid of older employees is “job elimination.” However, that may just be an excuse for what is really age discrimination. If the company is not really eliminating the job, just changing the title and putting someone younger is your former position, you may have an age discrimination claim.
2. Layoff. The company is supposed to attach to a layoff notice a list of other employees included and excluded from the layoff, along with their ages. Employers can be sneaky about the way they put together these reports. Some will show only select departments or specific job titles, which don’t give the whole picture. More often, they’ll include a few under-40 employees to make the bloodletting look less like age discrimination.
Still, if you are selected for layoff and younger, less-qualified employees at your level are not, you might have an age discrimination claim. If you’re part of a one-person or small “layoff” and you can show that younger people are not being included, then you may be able to prove age discrimination.
3. Suddenly stupid. If, after years of great performance reviews, you’re getting reprimanded for things everyone does, or being nitpicked for things the company didn’t care about before, it’s possible that the company is gearing up for what I call the “suddenly stupid defense.” They’re building a case to get rid of you for poor performance – trying to show a “legitimate reason” other than age for firing you. If you’re being targeted for write-ups when younger employees do the same things and aren’t written up, you may have an age discrimination claim.
4. Threatening your pension. I’ve seen cases where the company threatened that if the employee didn’t retire right away, it would look for ways to go after that worker’s pension. That’s a scary threat, but it may be a hollow one. First of all, few people have what would be considered a “pension” (a lump sum paid out every month). Most people have 401(k)s or similar savings plans that your employer can’t touch.
Your employer may claim that you can lose your right to your vested pension if you’re fired “for cause,” but it’s not that easy. You have appeal rights if they deny your benefits, and you can sue if you aren’t satisfied with the administrator’s decision. If you’re being threatened, it’s time to run speedy-quick to an employment lawyer in your state who handles claims under the Employee Retirement Income Security Act or ERISA – the law governing employee pension plans and other employee benefits.
5. Early retirement. One way employers get rid of older employees is offering a package that includes incentives to take early retirement. Some of these packages are too good to pass up on, so if you are offered one, consider it carefully. If you turn it down, remember you can still be fired at will. However, if the company only fires the older folks, you might have an age discrimination claim. If the early retirement is involuntary, such as when the only alternative offered is being fired, then it probably violates age discrimination laws.
6. Mandatory retirement age. If your employer still has a mandatory retirement age, it’s probably breaking the law. There are exceptions for firefighters and law enforcement. There is also a very limited exemption for employees who are at least 65 years old, who were bona fide executives or high-level policy-makers for their last two years, and who received an immediate nonforfeitable retirement benefit of at least $44,000.
7. Cutting job duties. One way to force older employees out is to cut job duties, limiting your authority and humiliating you with low-level tasks. You may have age an discrimination claim if this happens. So don’t just quit in disgust. (See “Is It Better To Quit Or Get Fired?”)
8. Isolation. Cutting you out of meetings, excluding you from lunches, and sticking you in a cubicle far from the action is another way employers try to get older employees to quit. If only younger employees are being included in activities from which you are excluded, this is evidence of age discrimination.
9. Denying promotions or opportunities for advancement. It’s illegal for an employer to deny you a promotion just because they think you’ll retire soon. Cutting job duties and isolating you are sneaky ways for them to claim you don’t have the experience or qualifications to get a promotion or to advance in the company. If your opportunities are limited after you hit one of those age milestones, it’s time to document what is happening and see whether they are also targeting younger employees for similar treatment.
10. Cutting hours. Another way to put senior employees under duress is to cut hours to the bone. Starving you to death is a way to force you to quit. Here, too, look around and see if older employees are being targeted.
11. Harassment. Cutting hours and job duties, isolating you and assigning menial tasks are all forms of harassment. Other examples of age-based harassment are: calling you the “old man,” or “old lady”; constantly asking when you’re going to retire; saying you’re senile; or making other comments related to age.
Follow the company’s policy for reporting harassment. I suggest you do that in writing. Title this document, “Formal Complaint of Age-Based Harassment and Discrimination.” Describe how you’re being singled out for treatment different than younger coworkers. Note any ageist comments that have been made to you; any other older employees being targeted; and whether there are any witnesses or evidence. Give the company a chance to investigate. If they don’t remedy the situation or if the harassment continues, it might be time to contact an employment lawyer.
If there are signs at work that you’re being targeted because of your age, make sure you document everything. Take steps to protect yourself before it’s too late.
Getting fired is probably one of the most stressful experiences you’ll ever have in your career, but it doesn’t necessarily mean the end of your professional journey. Just look at J. K. Rowling who, in the 1980s, lost her secretary job because she was caught writing fiction on company time. Today, she’s one of the most prolific authors in the world, best known for writing the Harry Potter book series, with an estimated net worth of £650 million!
That’s not to say that you’ll become a millionaire if you start using company time for your own personal gain, though, but rather that there’s a light at the end of the (what seems like a very long) tunnel.
In other words, there is life after being fired. And this guide will help you deal with losing your job and get your life and career right back on track.
1. Realise You’re Not Alone
Although this probably comes as no real consolation (understandably so), but you’re not the first person to lose their job and you certainly won’t be the last. Like Rowling, many people were fired from their jobs before they found success – Oprah Winfrey, Michael Bloomberg and the late Steve Jobs (who was fired from his own company!) are excellent examples. In other words, losing your job might just be a blessing in disguise.
2. Don’t Blow Up
Your first reaction to hearing the words ‘We’re letting you go’ will probably be shock, fear or anger, and you may even be tempted to start calling your boss or HR supervisor all sorts of names and possibly even get physical. Even if they ‘deserve’ it, it’s important that you manage your emotions and keep your cool – however difficult that may be. Essentially, don’t do something that you may later regret (even if you can’t see that now), as it will only reflect badly on you and you might even get into trouble with the law. Try not to burn any bridges!
3. Find Out Why and What Happens Next
Make sure you understand why you’re being let go. If the reasons for your dismissal have not been clearly explained to you, ask for clarification. This will help you determine the legality of your dismissal and whether you have a case against your employer for wrongful termination (more on that later). This may also be an excellent opportunity to ask for a second chance or feedback on how to improve.
You should also find out what happens next: when is your last day – is your dismissal effective immediately? How will your departure be described to the rest of the company? You might also want to consider asking your employer whether they will allow you to return once everyone has gone home for the day to collect your belongings without having to do the walk the shame.
4. Know Your Rights
It is very important that you understand your rights as an employee and what your options are if you suddenly find yourself unemployed.
In general terms, your employer must:
- Give you at least the notice stated in your contract of employment or the statutory minimum notice period (whichever is longer) – however, you can be dismissed immediately on the grounds of gross misconduct (eg: you were violent to a co-worker or a client).
- Give you a written statement explaining why you were fired.
- Pay you what you were owed (including salary, bonuses, commissions, holiday, etc.) or give you any ‘pay in lieu of notice’ if you’re not working your full notice.
Your employer has the right to dismiss you if, for example:
- You’re unable to do your job properly, though they must first follow disciplinary procedures and give you a chance to improve.
- You have a persistent or long-term illness, though you must be given reasonable time to recover and your employer should look for ways to support you. It is against the law to dismiss you because of a disability.
- You are made redundant, ie: the employer needs to reduce their workforce.
- Continuing to employ you would break the law.
If you have a case for unfair dismissal (for example, you were fired because you asked for flexible work, joined a trade union, took any maternity, paternity or adoption leave, etc.), you should try to talk things out with your employer first. If you’re unable to resolve the issue, then you can normally go to an employment tribunal.
It’s important that you seek legal advice if you believe you were unfairly dismissed or were forced to resign from your job (this is known as constructive dismissal). You can also speak to your union representative if you’re a member of a trade union.
Visit the GOV.UK website for more information.
5. Ask for a Reference
Although it will probably be one of the last things on your mind, it’s important that you ask for a reference before you leave, as you will likely be asked for one in your job search (note that your employer doesn’t necessarily have to give you one). Meanwhile, if you’re worried about getting a bad reference, ask your old employer for a basic reference which simply mentions your job title, salary and dates of employment. On that note, if an employer gives you a bad reference, they must be able to back up what they say with examples, such as supplying warning letters. If you’ve been given an unfair or misleading reference (and can prove it), you’ll be able to claim damages in a court.
6. Take Time to Mourn
Allow yourself a few days to mourn (keyword: a few days – after all, you don’t want to wallow in your sorrows and let your grief take hold of you). Take some alone time, don’t contact any employers for the first few days, drink some whisky or insert-choice-alcoholic-beverage-here and move on.
7. Don’t B*tch about it on Facebook
Or Twitter or LinkedIn – or anywhere else, for that matter. It’s understandable that you’re feeling hurt and angry about your dismissal, but if you really need to vent your frustrations, speak to a friend – in private. Whatever you do, do not take to social media to complain about losing your job and the ‘awful company’ you used to work at. Remember: potential employers will likely look you up online when you start applying for jobs, and coming across your expletive-filled digital rants will make them question your fitness to the role and their company.
When you are having issues at work, and the situation cannot be resolved, you may be forced to resign as an alternative to being fired. What should you do if you are asked to resign? In this situation, you will need to consider the consequences of resigning versus termination and their impact on your current lifestyle, as well as career goals.
Resigning vs. Getting Fired
There are several factors to consider when you resign, including eligibility for unemployment compensation, benefits, recommendations, a possible severance package, what you can say at job interviews, and how the company describes your termination to prospective employers.
If you are asked to resign, you don’t need to give an immediate response. Take the time to consider the alternatives to resigning before you get fired. The following information will help you decide whether you should quit before you get fired.
Options for Keeping Your Job
If you don’t want to leave, there may be options for keeping your job. It can’t hurt to ask questions such as whether there is anything you can do to stay on with the company. If there are performance issues, ask if a performance plan can be implemented, perhaps for a probationary period. Ask if there are any work-related issues that can be addressed, or are there any other alternatives to being let go.
If there are no options other than resigning or being terminated, the next step is to find out if your resignation is negotiable. What is the company going to offer you, if anything, to get you to leave? Some people receive large severance packages simply because they don’t resign immediately upon request.
Before resigning, make sure you research the alternatives to ensure a smooth transition to your next job.
Know Your Rights
It’s important to understand your employee rights when you lose or are about to lose your job. If you’re not sure about your rights, the best place to start is with the human resources (HR) department. Even if they are in the process of terminating your employment, they can help you transition out of the company by answering your questions, as well as explaining your eligibility for any continued company benefits.
If you feel that you have been wrongfully terminated, discriminated against, or unfairly treated according to the law or company policy, you can get assistance. For example, the U.S. Department of Labor has information on each law that regulates employment and advice on where and how to file a claim.
Your state labor department may also be able to provide assistance. A labor lawyer can advise you, for a fee, and may be able to help negotiate with your employer. It’s important to know your rights when your job is terminated and where to get help if you need it.
When you’re forced to resign, you’re going to have to leave your job at some point, but you may be able to negotiate your separation from the company. As the company no longer wishes to continue your employment, you may have an advantage in the negotiations—unless you are about to be terminated for cause. Inquire about receiving unemployment, severance pay, and continued health insurance benefits.
Also ask whether you can be paid for unused vacation, sick and personal time if you resign—or if you are fired; and whether your health insurance benefits can be extended for a given time period. In some cases, employers will provide health insurance for a set time—30, 60 or 90 days—after employment terminates.
The company has no obligation to offer a severance package, however, depending on circumstances, a package may be offered, or you may be able to ask for severance. It certainly can’t hurt to ask, and severance pay can help with expenses while you are seeking a new job. You may be able to negotiate continued health insurance benefits for a specific period of time. Also, the company may opt to allow you to collect unemployment and not contest your unemployment claim.
You may not be able to collect unemployment if you resign. If you’re fired, depending on the circumstances, you may be eligible for unemployment. If you were fired because the job wasn’t a good fit, because your position was terminated due to company layoffs or because of reasons like poor performance on the job, for example, you might qualify for unemployment benefits.
References can be an issue when you are forced to resign. You may be concerned about how the company might discuss your termination with prospective employers who check references. If the company isn’t going to give you a good reference, will they choose to not give a reference?
Many companies only confirm dates of employment, job title, and salary. If that's the case, the circumstances of your termination of employment won't be mentioned by your previous employer.
What to Say During a Job Interview
Before you say why you resigned during a job interview, be sure that your response syncs with your previous employer’s response in case they choose to provide one. It will be a hiring red flag if what you say doesn’t mesh with what the company says.
Review sample interview answers you can tailor to fit your circumstances when you are asked why you resigned from your job. Be direct and focus your interview answer on the future, especially if your leaving wasn’t under the best of circumstances.
Don't Blame Yourself
Finally, don't feel bad. In many cases, there is absolutely nothing you could have done to change the situation. Employees are forced to resign or get fired every day, and once the company has made the decision that you need to go, there is little you can do to change their minds. Instead, look at this as an opportunity to move on and work in a job that is a better fit.
Being asked to resign may not be a reflection of your work. It may be due to weaknesses at the company, such as inadequate training, lack of communication, or inexperienced management.
The bottom line when it comes to deciding on whether to resign is that it's important to get the best deal you can and to try to leave on terms that don't negatively impact your future employment prospects.
The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.
The unfortunate truth is that most people do not feel prepared financially for their retirement years. A 2013 survey by American Consumer Credit Counseling found that 75 percent of people agreed that they were not financially ready for their post-work years. But what about if retirement comes earlier than expected… and not by your choice?
What about those U.S. workers who are laid off or fired right before they’re due to retire? What does this do to their retirement plans? And what can they do to make sure that their retirement years are financially stable ones?
Older and Unemployed
It’s important to realize that there are many workers 55 and older who are struggling with unemployment. The AARP reported that nearly 1.8 million U.S. workers 55 and older were unemployed in May of 2013.
Losing your job when you are older can be a particularly tough blow. A big problem is that it often takes older workers longer to find a new job. PBS reported in May of last year that it was taking those 55 and older about a year on average to find new jobs.
This can play financial havoc with older Americans’ savings. This is especially true considering that many workers pump up their retirement savings as they get closer to retirement. If they’ve lost their jobs, though, they can’t do this.
What To Do
Fortunately, it’s not impossible to find a job when you’re over 55. You will, though, have to convince potential employers that just because you’re old doesn’t mean that you’re out of touch with the modern world of work.
This means showing potential employers that you’re not afraid of technology. You’ll have to use sites such as Facebook, Twitter and LinkedIn to network. This can help you find a job, and it will also show employers that you don’t resist today’s technologies.
Prepare several stories of how you’ve used technology in the past to succeed in the workforce. You’ll need these stories during the interview process. If you’ve designed successful Web pages, developed an award-winning online ad campaign or sold a record-setting number of high-tech software programs in your past, promote these accomplishments during your job interview.
At the very least, study up on the new technology that people are using at work. This could be social media sites such as LinkedIn and Facebook. It could be smartphones and tablets. You might also learn about cloud computing.
You’ll also need to make your experience a strength. If you’re 55 or older, you undoubtedly have plenty of stories in which you’ve created training programs, crafted marketing materials, helped develop new products or took on tasks that helped your company increase its bottom line. Employers want to hire workers who can help them make more money. Point to your years of experience to prove that you’re this type of worker, and give employers specific examples of how you’ve helped boost the profits of your past employers.
What Not To Do
Don’t apply to every job out there. Often, older workers take a scatter-gun approach, applying for every open position they can find. This too often means that they are applying for jobs that they are overly qualified for. Doing this paints you as desperate. It also gives employees the impression that you are out of the loop.
Finally, don’t forget your biggest tool in finding a new job: networking. If you have a long career behind you, you also have plenty of work contacts who can help you find a new job. Don’t be afraid to schedule meetings with former employers, co-workers and clients. You never know if a past client has a friend who is starting a new accounting firm or if a former boss knows of a colleague who needs a new IT professional.
Losing a job when you’re close to retirement is scary. But it doesn’t mean that your days in the workforce are over too soon. There’s always another job out there. You just have to use your skills, experience and knowledge to find it.
A late-in-life layoff could spell trouble. Here's how to cope.
Though many seniors rush to retire in their early 60s, an estimated 25% of Americans say they’re aiming to work until age 70 or later. But just because you’re planning to work until a certain age doesn’t mean you’ll get that option — especially if you wind up getting laid off later in life.
According to a report by the U.S. Government Accountability Office, unemployed workers 55 and over are considerably less likely than their younger counterparts to find new jobs. In fact, data shows that it takes more than 40 weeks for older workers to become re-employed.
IMAGE SOURCE: GETTY IMAGES.
There are several explanations for this trend, none of which are particularly surprising. Some companies are hesitant to hire older workers for fear that they’ll retire shortly thereafter. Others would rather onboard younger talent with more up-to-date skills. Unfortunately, that leaves laid-off older workers in an obviously tricky situation.
If you lose your job later in life, it’s natural to panic or worry about how it’ll affect your retirement. Here’s how to handle the situation while keeping your sanity intact.
1. File for unemployment insurance
No matter your age, as soon as you lose your job, your first move should be to file for unemployment insurance. Unemployment will pay you a portion of your earnings provided you didn’t leave your job willingly and weren’t terminated for cause. Though your weekly benefits won’t seem like much if you were a higher earner, it pays to get your hands on whatever money you’re entitled to. Keep in mind, however, that there may be a lag between when you first file for unemployment insurance and actually start receiving benefits.
2. Assess your savings
Once you file for unemployment insurance, your next move should be to examine your savings and see how much flexibility they’ll buy you. The one benefit, so to speak, of being laid off in your 60s is that you’ll be eligible to take penalty-free withdrawals from your IRA or 401(k), so if you need to use that money to pay the bills in the near term, you can dip in without worry.
3. Consider filing for Social Security (but only if you have to)
If you’re 62 or older when you lose your job, here’s another small bit of good news: You can file for Social Security and start collecting your monthly benefits. There’s just one catch — if you start taking benefits before reaching your full retirement age, which, for today’s older workers, is 66, 67, or somewhere in between, you’ll face a reduction in payments that will remain in effect for the rest of your life.
Now if you don’t have much in the way of emergency or retirement savings, and you need those Social Security payments to cover your bills, you’re better off taking a hit on your benefits and avoiding a potentially dangerous cycle of credit card debt. But if you have enough savings to sustain yourself without claiming those benefits, you’re better off waiting until your full retirement age.
Also, keep in mind that you are allowed to collect Social Security and unemployment simultaneously. That said, depending on where you live, your unemployment benefits might be reduced if you have money coming in from outside sources, including Social Security, so it pays to do some research before making a move.
4. Get health coverage
Losing your job often means losing your health insurance. If this happens to you, and you’re already 65, you can enroll in Medicare and get health benefits that way. If you’re not yet 65, you’ll need to either pay for COBRA and retain your old health plan, or buy a new plan on the open market.
No matter which option you choose, don’t make the mistake of going without health insurance later in life. The last thing you want is a catastrophic medical bill when you’re already in a precarious financial situation.
5. Figure out whether you want another job
Maybe you planned on working until your late 60s or 70s because you were comfortable in your role and content with your salary. But if you’re in a comfortable enough financial position and have a nice amount of savings, you may not want to get another job to replace the one you lost. Rather, you might use your layoff as an opportunity to kick-start an early retirement.
Now not everybody will have this option. If you’re behind on savings and can’t afford not to work those few extra years, you’ll need to come up with a plan for bringing in the income you expected your old job to provide. But just remember that there are different ways to earn a living, so if you’re not having much luck finding another position, you might use this as a chance to start your own business (whether you need the money or simply want something to do with your time). The U.S. Bureau of Labor Statistics reports that seniors 65 and older are more likely to be self-employed than any other age group, so if you’re banging your head against a wall trying to become reemployed, you may want to consider venturing out on your own.
Getting laid off at any age is never fun, but it can be particularly unsettling later in life. Knowing what to do if it happens will help you make the best of an otherwise rotten situation.
A pension is an employer-sponsored retirement plan that allows an employee to contribute a portion of his earnings toward retirement years. Some employers may match a portion of the employee's contributions so the pension account grows even faster. These added employer contributions are subject to the retirement plan's vesting requirements and may or may not be available to an employee who is terminated.
Vesting in a Pension Plan
To be vested in a retirement plan means an employee has worked the required amount of time — defined by the pension plan — to be entitled to receive the full benefits of the plan. If the employee is terminated from employment — whether voluntarily or involuntarily — prior to being vested, the employee is entitled to only the amount personally contributed to the fund. These contributions may be transferred to another retirement account upon termination to avoid being taxed on the return of contributions.
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Termination after Vesting
If the employee is terminated from a company after being vested, the employee is entitled to receive full retirement benefits upon reaching retirement age. For a defined-contribution plan, this means the full cash value of the plan, including employer contributions, will be available upon retirement. The employee may choose to transfer these funds to a new retirement account and continue making contributions. For a defined-benefit plan, benefits will be paid upon retirement based on factors such as year of service to the company, as defined by the plan.
Getting fired, unfortunately, can happen to the best of us. Regardless of the circumstances, what should you do if you’ve been fired?
First of all, don't beat yourself up. Don't dwell on it, since that won't help your situation.
Instead, focus on what you are going to do next and how you are going to find another job. Keep in mind that another hurdle – the stigma of being fired – has just been added to your job search. That said, there are ways you can address this issue and put it in at least a neutral, if not a positive, light.
What Not to Do After Being Fired
Even though it’s difficult, you can make a bad situation worse by doing or saying the wrong thing to the wrong people when you have been fired. It’s natural to feel angry, sad, and frustrated; just make sure to restrict negative comments and complaints to your closest friends and family.
But don't just walk out the door. There are things you need to know before you can move on.
Steps to Take in the Immediate Aftermath
If you are feeling emotional, shocked, or otherwise unprepared for this conversation, you can ask if you can make an appointment to discuss these issues.
In some cases, you may want to appeal your firing. However, it’s best to address your concerns the day you are fired. Once you are home and assessing your next steps, it’ll be important to know when your last paycheck will arrive and if the employer will provide a neutral reference that doesn’t mention you being fired.
Wrongful Termination and Unemployment Benefits
Before you begin a job search, consider where you stand from a legal perspective. Was your firing legitimate or could it be considered wrongful termination? Can you, or should you, consider suing for wrongful termination?
Are you eligible for unemployment benefits? If you were fired for misconduct you may not be eligible, but don’t assume that is the case. Check with your state unemployment office, especially if you have a different opinion than your employer does about how you parted ways.
In many cases, if it isn’t clear-cut, the unemployment office will lean towards the unemployed job seeker, rather than the employer, when making a decision on unemployment compensation benefits.
Resumes and Cover Letters
All your job search correspondence must be positive. There is no need to mention that you were fired in your resume or in your cover letters. Make sure your cover letters address the position you are applying for and why, and how, you are qualified for it. That’s all you need to do. There is no point in bringing up the circumstances of your leaving until you have to.
Job Applications After Being Fired
When filling out job applications, don’t be negative, but do be honest and don’t lie, because it will come back to haunt you.
You can use language like "the job ended" or "terminated" if you need to state why you are no longer working at the job. If you are specifically asked if you were fired, you need to answer yes.
Lying on a job application is grounds for dismissal at any time in the future and could cost you future unemployment benefits.
Interviewing for Jobs After Being Fired
Here’s where getting fired is going to matter most. You can be sure you are going to be asked the question “Why did you leave your last job?” The best bet is to keep it brief and to the point and avoid badmouthing your former employer.
Sometimes it's truthful to say "the position wasn't a good fit, and we parted on good terms" instead of saying "I was fired." However you address it, don't lie, because it may come back to haunt you if a potential employer checks references or conducts a background check.
Take some time to prepare answers to questions about being fired, so you know exactly what you'll say, instead of trying to come up with an answer on the spot. The more prepared you are, the less the firing will create a negative impression for an interviewer.
Getting Fired and Moving On
As hard as it may be, you need to get over getting fired and move on. You need to be able to convince employers that, regardless of what happened in the past, you are a strong candidate for a new position and can do the job. Focusing on the skills and experience you have, rather than the firing, will help sell you to the employer and will help you get the job.
Poor health, a job loss, or familial changes could all force you into unplanned retirement. Here's how to handle it.
You’ve drawn up a retirement plan, you’re saving each month, and you think you’re on track for your financial goals. But even the best-laid plans can go wrong. If you’re forced to retire sooner than expected, you could struggle to support yourself on a smaller nest egg that now has to last years longer.
It’s more common than you think. 37% of people retire earlier than planned, according to the Center for Retirement Research (CRR) at Boston College. Below, I explain common reasons people are forced to retire early and what you can do to prevent an unplanned retirement from threatening your financial security.
Image source: Getty Images.
Common causes of unplanned retirement
The CRR study cites three main reasons people are forced to retire early. The first is poor health. While you may plan to work until age 65 or 70, a crippling illness or injury could prevent that. You’d lose months or years of income and be forced to tap your retirement accounts ahead of schedule. You may also have large medical expenses that drain your savings faster than anticipated.
The second cause is employment changes. If you’re laid off or your company goes under, you’ll have to decide whether to seek new employment or retire early. Those who cannot find a new job may not have a choice.
The third cause is familial shocks. A divorce, poor spousal health, or a dependent parent moving in could strain your finances, preventing you from saving as much as you’d like for retirement or draining your retirement savings too quickly.
How to deal with an unplanned retirement
The first step is to decide whether you truly need to retire now. If you’re unable to work because of poor health, you may not have a choice. But if you’ve lost a job, you can try to find a new one so you can continue working until your planned retirement date. Caring for a sick family member may prevent you from working a full-time job, but you may still be able to work part time to keep some money coming in.
Next, you need to reevaluate your existing retirement plan. Think about how long your savings now have to last and recalculate how much you need to cover living expenses. Total up your monthly expenses, including new expenses that weren’t factored into your original retirement plan, like caring for an elderly parent. Then, multiply this by the number of years of your retirement, adding 3% annually for inflation. A retirement calculator can help with this. Keep in mind that if you have a serious illness, you may now have a shorter life expectancy than you’d previously thought.
Look for ways to make up the difference between what you have and what you need. This may include cutting back on expenses where possible and foregoing travel or large purchases. If you’re 62 or older, consider signing up for Social Security if you haven’t already.
You won’t get your full benefit amount per check if you’re under full retirement age (FRA) — 66 or 67, depending on your birth year. You’ll receive a reduced amount, equivalent to your full benefit minus ⅔ of 1% times the number of months you are below your FRA. If your FRA is 66 but you start benefits at 65, you’d receive 92% of your scheduled benefit per check. If you delay Social Security, your benefits will grow at this same rate until you earn the maximum benefit at age 70. This is 124% of your scheduled benefit for an FRA of 67 and 132% for an FRA of 66. You can figure out how much your benefit will be by creating a my Social Security account.
While starting early means accepting less money per check, these benefits could make up for some of your lost income. This will reduce how much you need to withdraw from your retirement accounts, stretching your savings a little further.
There’s no need to wait until you’re forced into an early retirement to begin planning for one. Boost your retirement account contributions if you can and try to save more than you think you need. If possible health issues concern you, build these costs into your retirement plan. A 65-year-old couple retiring today will need about $280,000 to cover medical expenses in retirement, according to Fidelity. You could save for this in your retirement account or a health savings account (HSA), if you have a high-deductible health insurance plan. Money you put in an HSA is tax-deductible, and if you use it for medical expenses, you won’t pay taxes on it at all. Once you turn 65, you can use the money just like a regular retirement account, though you’ll pay income taxes if the money isn’t used for medical expenses. Single adults may contribute up to $3,500 to an HSA in 2019 and families may contribute up to $7,000.
Early retirement is great if you can afford it, but if not, it can be more stressful than your time in the workforce. While you can never be certain whether you’ll need to retire early, you can do your best to prepare today by saving as much as you can for retirement and thinking through how you would handle the situations outlined above.