two men congratulating early retirement

When Retirement Comes Early

Do you have a date set for when you will retire?  Maybe it’s the day you turn 65, or maybe when you are eligible for your full Social Security benefit. Whether it is imminent or still a few years off, you have probably thought hard about how to prepare your family and your finances for that day. However, what if the timing is not up to you?

An Offer You Can’t Refuse

The Center for Retirement Research found that 37% of Americans retire earlier than expected.  For some, it is for health reasons, but others retire sooner because of a change in employment.  Corporate layoffs, changes to pension benefits, and buyout offers are all situations that can create an urgent need for financial planning.  If tomorrow was your last day on the job, how confident would you be about the next right move for your family, financially? If you were offered a package to walk away from working, do you know if it would be enough to retire?

The recent news around forced retirement due to the coronavirus pandemic is a reminder that the decisions about our retirement benefits can be out of our hands. This isn’t a new concept, either. In 2019, General Electric froze its benefits for existing employees and some former employees were offered lump-sum pension buyouts. In 2018, Verizon offered 44,000 current employees a buyout and 10,000 accepted the offer that included 60 weeks of salary. If you were offered cash or a revised set of benefits, would you be scrambling to figure out what is best for your family?

Facing Early Retirement

Within 50 miles of our office in Allentown, publicly traded companies like PPL, Merck, Air Products, and Olympus have large concentrations of workers. From time to time, we have seen large layoffs and changes to benefits prompt waves of retirement from these companies. The same thing can happen in privately-held companies where there may be unique benefits like an Employee Stock Ownership Plan. Such a plan could create a large windfall for many employee owners of the company. These situations are both meaningful to your retirement plan and out of your control.

Here are some tips for how you can plan for your unique situation if faced with unexpected retirement:

  • Look at multiple scenarios. Think about the impact of variables like living a long life, one spouse passing early, or a major expense happening in retirement. You should know whether your plan is flexible enough to account for multiple situations.
  • Don’t box yourself in. Make sure you give yourself flexibility in your plan to change as your life and the world around you evolve. Committing to a guarantee might sound attractive but make sure you are not limiting your future options.
  • Don’t take advice from anyone who hasn’t seen the whole picture. Decisions about company benefits are often “water cooler” decisions. Your friends may mean well, but in giving advice, they may not appreciate all of the aspects of your unique financial situation.  The same goes for any professional advisor with whom you may engage.  Make sure they are not just looking to sell you something or focusing solely on your investments.  You should work with a Certified Financial Planner® who is committed to a holistic approach.
  • Create a list of decisions that you have to make. There are things that you and your family will need to decide that will be different from anyone else. Write those down and make sure you have them prioritized.  For example, updating your estate plan might be a more urgent priority than rebalancing your investments. At Morton Brown Family Wealth, we provide our clients with a list of retirement-related decisions that helps them begin to set priorities and develop an action plan.

Retirement Planning

The choices we make about retirement are important because so many of them are irrevocable. Having a custom plan in place, one that is designed for your unique situation, can help to ease the burden of understanding as to whether it is safe to retire early. The timing of retirement is not always up to you but being prepared with a financial plan is a proactive choice that can give you the confidence to feel prepared for the unexpected.

Originally published in October 2019, this posted has been updated to remove old references and add new and timely information regarding early retirement.

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