Here's What to Do When Forced to Retire Early

Older U.S. career professionals face a unique and highly anxious financial future when they’re forced out of the workforce early, a few years before they planned to retire.

This scenario happens more than one might think. Data from the Allianz Center for the Future of Retirement show that a significant number of Americans leave the workforce earlier than planned, often due to circumstances beyond their control. All told, Allianz reported that 42 percent of workers retire earlier than planned, usually due to layoffs, ill health, or injury.

Additional research from the Employee Benefit Research Institute found that nearly half of retirees leave the workforce earlier than planned, and for many, that exit isn’t voluntary.

“That’s a significant problem, because losing a job in your late 50s or early 60s doesn’t just create short-term stress, it cuts off your ability to save during your peak earning years,” Mike Pappis, a certified financial planner at Boldin Advisors, told NTD News.

“Losing your job is an emotional event, and making major financial decisions from a place of panic rarely ends well,” Pappis said. “Start by stabilizing your near-term situation: review your severance package if you received one, file for unemployment, and carefully evaluate your health insurance options.”

Once you’ve caught your breath, the most important thing you can do is assess whether retirement is actually financially viable right now. “That means building a real retirement plan, not just checking your account balances,” Pappis noted. “Your future security depends on a lot more than how much you’ve saved. When to claim Social Security, where you live, what you spend, whether you work part-time: all of these levers matter.”

Americans forced out of their careers before they’re ready may be surprised to find that a few thoughtful trade-offs can make early retirement more workable than they originally thought.

For example, a lower-income year does create opportunities for Roth conversions because it allows for a lower tax burden on the deferred dollars. “Then you have to recalibrate your spending because inflation plus a loss of a job equals changes that need to be made in order to not drown,” D’Andre Clayton, co-founder of Clayton Financial Solutions, told NTD. “Also, consider taking another role to fulfill insurance needs and deferring Social Security to smooth out the numbers.”

It’s also a good idea to stress test not just your goals but also your income channels after they are interrupted. “You have to build liquidity outside of your retirement portfolio,” Clayton noted. “When life happens, it doesn't care about a schedule of when your deferral gives you permission to touch money without penalty.”

“Because unplanned early retirement is more common than most people expect, everyone within a decade of their target retirement date should have both a primary plan and a contingency plan,” Pappis said.

That means asking yourself the hard questions now: What happens if you retire three years earlier than expected? How would health care costs change before Medicare kicks in? What would it mean to claim Social Security earlier? Which of your expenses are fixed, and which could you cut? How much of a cash cushion do you have if it takes time to find new work?

“Running those scenarios when things are calm makes the decisions far less stressful if you’re ever forced to make them under pressure,” Pappis added.

“People pour all their energy into protecting the numbers, which is understandable, while ignoring the identity rupture underneath,” Sarah Barry, a certified professional retirement and life transition coach and author of the book 9 Habits of Happy Retirees, told NTD. “For high performers, especially, the role was not just income. It was structure, status, routine, and a sense of being needed.”

When that disappears without warning, the financial plan can be back on track even as the person remains quietly adrift. “The ones who recover well address both: they stabilize the finances, and they deliberately rebuild a sense of purpose and structure, rather than assuming the second part will sort itself out once the money is handled,” Berry noted.