Many Americans are obsessed with discussing and planning their retirement. They sketch out future career paths, make elaborate financial and tax calculations, and decide on the optimal time to start taking Social Security—often undertaking these measures decades in advance. But you know what they say about the best laid plans—life, and retirement, often goes awry.
The reality is that some 58% of Americans have their working years cut short and retire before they want to, whether due to personal health, employer discretion, or family-related reasons, according to a recent survey from the Transamerica Center for Retirement Studies. The actual median retirement age is 62, according to the survey, a few years before the so-called “traditional” age of 65. Just 21% of those who retire early report being financially stable.
Health is often the biggest factor: 46% of those who retired earlier than planned did so for personal health-related reasons. But a boss’s whims are a close second, with 43% reporting an employment-related issue was the cause, whether a layoff, buyout, or something else. Though you may want to keep clocking in for a few more years, your company’s plan often trumps your own.
While 20% of early retirees named caregiving as a reason, this is often a bigger factor for women, says Terri Fiedler, president of retirement services at Corebridge Financial, which recently released a report on women’s retirement regrets.
“Retiring before you’re ready can create financial challenges. It means you have less time to save and the money you do have saved now has to last longer,” Fiedler says.
After all, every plan needs a contingency. Here’s how to prepare.
Save now
By far the biggest regret most people have when it comes to retirement is not saving more—63% of respondent retirees to Corebridge’s survey said they wished they doubled down on their retirement contributions. Though this is easier said than done in the current economic environment, Fiedler says to start small—anything is better than nothing.
The new year is a great time to increase any automated savings—like into a 401(k) or similar workplace retirement plan—by a percentage or two; 31% of respondents to the Corebridge survey wish they did so. A traditional or Roth IRA is another great option. The change you feel now will be minimal, but it could mean tens of thousands more dollars saved down the line.
That’s critical, because moving up the timeline of when you start taking Social Security payments—which some 58% of Americans expect to be their primary source of income in retirement, according to Transamerica—can mean a significant drop in how much you get: Taking the benefits before full retirement age—which is 66 to 67, depending on your date of birth—means a smaller check, by 30% of more. Meanwhile, waiting until age 70 gets you the biggest payout.
Lower fixed expenses
Focusing on eliminating or at least minimizing debt is also an important step, says Fiedler.
“With fewer fixed bills in retirement, you can potentially stretch your dollars longer, spend more on your lifestyle and better prepare for new or increasing costs that you may encounter,” she says.
Of course, there’s also a current benefit. Eliminating some monthly expenses can help you redirect that spending now—putting it toward something, like investing, that can pay dividends down the line.
Open up the conversation
When it comes to something like caregiving, Fiedler recommends talking with your family well in advance about how and where someone wants to receive care if the need arises. This helps reduce stress, and can also make you more clear-eyed about your financial plan in the here and now.
“Defining caregiving roles and responsibilities can help avoid surprises and rushed decisions,” she says.
For example, you may be able to help an older family member make their own preparations now, that will save you headaches in the future. Or if your spouse’s health starts to decline, you can better manage the emotional turmoil that will come with caring for them.
Create an alternate timeline
While waiting until 65 or later to take Social Security may seem optimal, there may not be much of a choice in the matter. Creating an alternate financial timeline—one in which you are retiring earlier than you might like—can help you visualize what that looks like ahead of time. That, in turn, can help with the other steps above: If you must retire at 62 rather than 65, how much more would you need to save now to make up the difference? Conversely, how much spending would you need to cut? How would that speed up your debt repayment timeline?
A financial advisor can help with these questions and scenarios, although you can also work them out on your own. Just remember: Flexibility will be key.
Despite all of these financial worries, 89% of retirees are generally happy and 86% are enjoying life, according to Transamerica. It shows that even if it doesn’t go exactly to plan, life can still work out just fine.
