• Thu. May 23rd, 2024

6 Ways To Avoid a Forced Retirement

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Most people dream of retiring at the timeline of their choosing, without unexpected situations dictating when that is. While later retirements are becoming the norm, sometimes circumstances can set a person up to have to retire earlier than planned, considered a “forced retirement.”

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Whether this forced retirement is due to job layoffs, illness or other possibilities, the last thing you want is to be financially unprepared for a retirement you didn’t plan on happening.

To help you stay ahead of such an eventuality, Andrew Van Alstyne, a financial planner with Fiduciary Financial Advisors, explained six ways to be prepared for, and hopefully avoid, a forced retirement.

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Save For the Unexpected

This topic hits close to home for Van Alstyne, whose mother experienced a layoff from IBM in the early ’90s, putting them into tight financial times. Layoffs are, unfortunately, a reality in any industry, as well as other unforeseen events, such as sudden illness, or even divorce or the collapse of a self-employed business. While you can’t always avoid these circumstances, you can be prepared, he urged.

“There is never an excuse to not have a fully funded emergency fund,” Van Alstyne said. He stressed having enough savings to cover six months’ worth of expenses or more, and to keep it liquid, so you can access it easily.

“Sometimes you may go a little bit heavier on that depending on what investment strategy you’re comfortable with,” he said.

Alternately, you don’t want to tap into that emergency fund unless you truly need it.

“Suddenly finding yourself unemployed is one of those emergencies,” he said.

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Avoid Drawing From Retirement Accounts

Saving in tax-advantaged retirement accounts such as 401(k) plans or IRAs is also crucial, however, he does not recommend taking money from those before you absolutely need to.

“Just like I wouldn’t have someone use money from an emergency fund for funding a family vacation, I wouldn’t have someone use money that we earmarked for retirement for an emergency expense unless there was absolutely no other option,” he said.

Stay Aware of Trends and Layoffs

“I’m a huge advocate of just making sure that you’re staying informed and educated and up to date on latest best practices on the industry that you’re in or the one that you’re trying to get into,” he explained.

While sometimes layoffs, in particular, can seem to come out of the blue, he said, “If you’re reading the tea leaves in your place of employment and you see these sweeping layoffs go around, or if you’re hearing earnings calls and things where analysts aren’t thinking very highly of future outlooks for the company, it would make sense to increase your buffer on your emergency fund.”

Keep Your Skills Sharp

Van Alstyne also believes in constantly learning, upskilling and further developing yourself.

In the case of his mother’s layoff from IBM, she was able to utilize company benefits to pay for higher education — both an undergraduate degree and a Master’s degree, which helped her reskill herself.

“So, if you can, put yourself in a position where you can constantly drive yourself to get better,” he urged.

Create a 529 Plan for Yourself

Additionally, most people only know of 529 savings accounts for their kids, but Van Alstyne pointed out there are no age restrictions on a 529 account for education expenses.

“So it’s something where if you wanted to start earmarking some money today to constantly improve your skills, even two to three years down the road, that’s a huge opportunity to have yet another bucket, another silo of cash, that you can have access to for yourself.”

If you don’t end up using all of those savings, you can then convert a portion over into a Roth IRA down the road, as well.

Congress also recently passed legislation that widens the scope of what these funds can be used for, such as apprenticeships and trade schools, he said.

“It’s definitely something that I would highly advise for, especially if someone is in a startup or at one of these companies that they’re kind of getting the feeling that the long-term outlook is not something that they would necessarily be a career employee of. The only way that you’re going to move up and or move out, whether on your own or forced, is by continuing to upskill and a 529 is a great way to fund those upskilling opportunities.”

Review Your Company’s Benefits Package

If you are employed, it’s crucial to do a thorough review of your company’s benefits package, Van Alstyne said.

“Just see what’s available to you.”

Look for subsidies for education expenses and take advantage of those. If you have employer stock options or other stock compensation, assess whether you can or should trade some of that stock, or hold onto it for potential future equity. Understand if there is a severance package available to you, as well. If you’re not sure, reach out to your HR department, he suggested.

There may be options that would afford you some cash outside of having to draw from your emergency funds.

While it’s impossible to account for all the scenarios that could find you retiring before you’re ready, planning for any contingency will better prepare you if it comes to pass.

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This article originally appeared on GOBankingRates.com: I’m a Retirement Planner: 6 Ways To Avoid a Forced Retirement

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