Your Client Is Forced to Retire Early. What Should They Do?

What You Need to Know

An emergency fund can provide breathing room while assessing the situation.
Securing health insurance on a spouse’s policy is often the cheapest and best option.
Clients may consider getting into consulting or starting a business.

Retirement planning is likely one of the main areas of focus in your work with clients. They rely on you to help them plan, save and invest for a comfortable retirement. In most cases, they likely have an age, or an age range, in mind to move forward into retirement.

Things don’t always go as planned. Sometimes, clients will face an unplanned early retirement due to a job loss, a medical situation or other unforeseen circumstances. If this happens later in their working years, between about 55 and 65, there are some key decisions to be made.

Here are several steps to best navigate this situation.

Emergency Fund

Part of ongoing planning should include maintaining a sufficient emergency fund. This will certainly not get clients through an unplanned retirement, but this money can provide some breathing room as they assess the initial impact of the situation and plan for the future.

Financial experts typically suggest having at least six months’ worth of normal expenses on hand in a liquid account. You can help your clients determine the amount that’s right for them.

Disability Coverage

While disability coverage may not solve a client’s financial needs on a permanent basis, having it in place can help ease the financial strain of a serious medical condition and provide some time to chart a new financial course.

Be sure to work with your clients to have appropriate coverage in place, either through their employer, a private disability policy or both as appropriate.

Retirement Savings and Investing

In the event of an unplanned retirement, having a solid base of retirement savings can be very helpful in guiding clients through the next steps in planning the rest of their life.

They will need help making any adjustments to their investment strategies as well as when and how to take distributions. This planning will also include helping clients decide when to claim Social Security, among other issues.

Assess the Overall Picture

In the event of an unplanned retirement, the first step is to sit down with the client and assess the overall financial situation. How well is the client positioned?

This will help both parties in charting the client’s next steps. Perhaps the client had planned to retire at age 63, and this occurred at 58. If your assessment indicates that the client is already in position to confidently move into retirement, that’s obviously a great outcome.

This assessment should look at clients’ potential sources of retirement income, including:

Balances in retirement accounts
Balances in taxable accounts
Any severance package offered by their employer
Any bonuses due from their employer
Income from a working spouse
Stock compensation from their employer such as stock options, restricted stock units and company stock
Balance in their HSA
Social Security at various ages
Annuities owned
Disability insurance benefits, if applicable

You should also review their expenses, including:

Housing
Ongoing living expenses
Health care

This assessment will help both sides determine if the client can shift into retirement or needs to find work if able. Retirement may entail scaling back a bit initially, while seeking employment might be because of a want rather than a need. Work at this stage might entail something on a scaled-down basis or even some sort of consulting or self-employment.

“Early retirement, especially for medical or caregiving reasons, can result in unexpected expenses or changes in income,” Says Devin Caroll, lead advisor and founder of Carroll Advisory Group. “This is the time to go back through the budget and adjust where needed, possibly reducing noncritical spending to ensure their core needs are met.”

Review an Exit Package

If your client lost a job, you will want to review any possible exit package from the employer. In some instances, companies offer incentives to get older, longer-tenured employees to take a buyout offer.