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By Stephen Sellner | Citizens Bank Staff
Things don’t always go as planned. Take the age of retirement as an example.
According to a 2018 Gallup survey, the average non-retired American expects to retire at age 66. However, the reality is today’s average retiree began retirement at 61.
So, what does this mean? Many people have an extra five or so years of retirement to plan for — not to mention five fewer prime-earning years to help fund it.
An earlier-than-expected retirement can happen for a number of reasons. Some are positive, like a well-executed plan that allowed you to retire early. Yet the more plausible cause is you were forced into retirement earlier than you would’ve liked because of health problems, job loss, outdated skill set, or any other reason.
If you were or are being forced into an early retirement, consider these tactics to help you adjust your plan for the future.
A forced or mandatory retirement can be emotional — you might be upset, confused, maybe even a little scared about what lies ahead. With that in mind, don’t make any rash decisions right away. Give yourself some time to come to terms with your new future before making any major financial decisions.
Use this time to organize your financial documents, like your statements, policies, and legal documents. Then, when you’ve cooled off, you could focus on adjusting your plan, whether on your own or with a financial professional’s assistance.
Give yourself time to cool off to avoid making rash decisions about your future.
Those forced into retirement may be tempted to take out money from taxable accounts first, like their savings. This decision, in most cases, is a mistake.
If you’re at least 59 ½ years old, consider tapping into your 401(k) or IRA funds first. Not only are these penalty-free withdrawals, but you’re also likely to be in a lower tax bracket. You can also withdraw from your employer-sponsored retirement plan (not IRAs) at age 55 without penalty when you unwillingly leave your job, or are “separated from service.”
Do you have a Traditional IRA? If so, consider converting to a Roth IRA so you can capitalize on its tax-free withdrawals. The income limits of a Roth IRA may have kept you from converting before, but that might not be the case anymore now that you’re in a lower tax bracket.
Be sure to consult a tax professional before making this change. And know that there’s a five-year waiting period between when you make your Roth conversion and when you can begin making tax-free withdrawals. Make sure you have other funds to tap into during that waiting period.
Another mistake many forced retirees make is taking Social Security as early as possible, at age 62. If you can, you’re likely better off delaying until your full retirement age, at which point you’ll receive your full monthly benefit. Taking Social Security prior to this age means you’ll get a reduced benefit, even after you reach full retirement age.
|What’s your full retirement age?|
|Year of birth||Full retirement age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
Not every person would benefit from waiting until full retirement age. Taking Social Security at 62 may make sense if you’re in poor health and your life expectancy isn’t high. In that case, delaying until full retirement age could have you leaving money on the table.
Being forced to retire can be overwhelming. That’s why it’s best to take some time to cool off before deciding how to alter your retirement plan. A financial professional can help you navigate the way financially while offering valuable support during a tough time.
Then you can get back to focusing on what’s most important: enjoying retirement!
If you’re being forced to retire, schedule a Citizens Retirement Checkup® to learn how to pivot your plan so you stay on track toward your goals.
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