Early retirement's no fun financially when it's not your idea

Jul 31, 2010 — The Dallas Morning News

Pamela Yip

Jul. 31, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- Ivan Shomer and his wife planned meticulously for their retirement, but even they were caught off guard when he was laid off from his sales manager job four years ago, essentially forcing him into retirement at age 63.

"We definitely had to tweak a few things," said Shomer of Carrollton. "We had to set up a budget sooner than we had originally planned. We wanted to see where did our money go and what's mandatory in the way of expenses and what's optional."

Successful retirement planning requires a methodical, thought-out approach and a strong sense of where you want to be when you stop working.

But, as the Shomers found, the vagaries of the job market can torpedo the best-laid plans, and if you're forced to retire before you're ready, it can really throw off your planning rhythm.

For one thing, the time you thought you had to catch up on retirement savings is abruptly cut short.

"A retirement date can carry special meaning or weight, and being diverted from a carefully laid-out plan can have a tremendous impact -- taking the wind from one's sails -- emotionally and financially," said Joseph Montanaro, a certified financial planner at USAA in San Antonio. "In this type of situation, individuals may be inclined to make snap decisions that could be costly."

Don't panic.

"Take some time to pull back and evaluate your options," said Derrick Kinney, senior financial adviser at Derrick Kinney and Associates in Arlington.

Here are some of the things you need to consider.

"One of the first things to review is what the severance package, if any, is," Kinney said. "This will help serve as your lifeline for the next few months and helps buy some time to make longer-term decisions."

Shomer, who received two weeks of severance, said the key to making the money last is to watch your spending.

"You're going to have to really run a tight budget," he said. "You're not going to spend money on the miscellaneous stuff, so you take the dollars that are coming [in] and now you're going to be working on a budget."

A crucial decision you'll face is whether to claim your Social Security benefits early.

Workers may start receiving Social Security retirement benefits beginning at age 62 -- but they'll receive a lower benefit than those who wait until their normal retirement age. The normal retirement age depends on your year of birth.

Retirement experts say if you can afford to and are in good health, don't claim Social Security benefits early.

Alicia Munnell, director of the Center for Retirement Research at Boston College, said taking your Social Security benefits at 62 will hurt you in the long run.

"If you claim Social Security at 70 instead of 62, your monthly benefit is at least 75 percent higher because there's this delayed retirement credit," Munnell said.

What's more, if you take your benefits at age 62, you'll really feel the impact in your 80s because some of your savings will be used up, she said.

Shomer chose to take his Social Security benefits early rather than wait. He said the difference in benefit amounts was "small, but still significant."

"I decided, no, we needed the income," he said.

Lynn Lawrance, a certified financial planner at Financial Network Investment Corp. in Dallas, said workers today have to prepare for "a retirement that could potentially span more than 30 years."

"I recommend you focus on whether you'll have enough money to cover your bills for up to 30 years, possibly more, based on your health, family's longevity and your sources of income and assets."

And that has a lot to do with how well you've planned before a forced retirement.

A crucial part of that planning is having an emergency fund, said Paula Brown, managing director of the Lone Star Agency in Irving, part of the Prudential Insurance Company of America.

"They have got to have emergency cash," she said. "No matter what, they've got to have five to six months or more of earnings put aside for emergencies."

As Americans live longer, the question of how you will pay your medical expenses in retirement is critical.

"If you're 63 1/2 years old, COBRA coverage will bridge those 18 months until you qualify for Medicare," Montanaro said. "If you're younger, you'll want to seek out a private health insurance policy or seek some form of employment that provides health care coverage."

You also may be able to hop on your spouse's employer health insurance coverage.

Shomer maintained his employer health coverage through COBRA, but after that ran out, his prudent financial planning enabled him to self-insure his health care expenses until he qualified for Medicare at age 65.

"When COBRA ran out, the bridge coverage is your savings," he said.

Determine whether you will need to find another job to bring in income. But be prepared stick it out in your job search.

"Once unemployed, older workers tend to be out of work longer than their younger counterparts," the AARP Public Policy Institute said in a June report.

Shomer said his age hurt him in the job market.

"The reality is, even if you had the good fortune of having an interview set up, as soon as they saw you and met you, regardless of your vitality, your energy -- if you're above a certain age, you're not going to be hired," he said. "That's the reality of today's market."

Still, this could be a blessing in disguise.

"A layoff may be your opportunity to pursue employment in areas where you have more passion," Lawrance said.

Newstex ID: KRTB-0046-47489435