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Suddenly Retired

What to do when you have to leave the workforce sooner than you planned.

You've been counting down the days to retirement for years, but what happens when that day comes sooner than you planned? A recent survey conducted by Athene found that while 67 percent of retirees left the workforce earlier than they anticipated, just 26 percent of them did so by choice. The other 74 percent retired early due to layoffs, downsizing, or medical issues.

If you find yourself forced into early retirement, the first thing you should do is acknowledge your emotions and resist the urge to make any big decisions, advises Josh Nelson, a financial advisor and CEO/founder of Keystone Financial Services in Loveland, Colo. "Financial decisions made when you are emotional can lead to bad choices."

After you've given yourself some time to process what has happened and accepted that this means a change of plans, the next step is to create a new plan. But rather than go it alone, you'll want to put together a team that can help you make this transition a successful one.

If your company did a mass layoff, chances are they brought in experts to handle the downsizing. "The company could have resources available at termination like an outplacement agency," says Nelson. Take advantage of these resources for as long as you possibly can. Then, bring a financial advisor into the picture to walk you through your financial options going forward. Here are a few things you'll likely consider:

  1. Uncover Hidden Pensions
    If you once worked for another company that offered a pension, it is possible that the account still exists—it may have just been frozen when you left, says Nelson. That added money could help pad the retirement savings you already have.
  2. Address Medical Costs
    "Health insurance costs are some of the greatest costs throughout retirement," says Steven P. Azoury, CLU, ChFC, owner of Azoury Financial in Troy, Mich. If your company doesn't offer you an extension on your health insurance, and you're still too young to qualify for Medicare, getting another job that provides benefits—even if it's part-time—is a good option. So is becoming a dependent on your spouse's insurance.
  3. Know Your Budget
    "Most people don't know where their money is going and that's why putting together a balance sheet that you can review with a financial advisor is so important," says Nelson. "It allows you to see the reality of how much it costs to live for a month, and how much it would cost if you didn't get a paycheck." Once you have a good sense of your fixed expenses (your mortgage and car insurance, for example) and your discretionary expenses (such as cable, dining out, and vacations), you can decide where you can make some cuts.
  4. Make a Move
    "If you were planning to downsize from your family home in retirement, do it sooner rather than later," says Azoury. All those taxes and expenses that you'll save as a result can go into your retirement funds.