Your back has been giving you problems for years, but today is different. When you reached to shut off your alarm this morning, excruciating pain flooded your senses. A trip to your physician revealed your spine has begun to fuse together in a condition called ankylosing spondylitis. Thanks to your back, you are about to be forced to retire well before you had planned… and without any savings to fall back on.
Most workers plan to stay in the job market until they reach their age of retirement, generally 66 or 67 depending on their year of birth. Roughly 45% of American workers do not reach this goal, as they are forced into early retirement. Often, this is caused by health issues which make it impossible to continue working. For this scenario, we will examine the options available when you are forced to retire early due to health problems. Is it possible to retire without savings?
Retirement or Disability?
If your health issues are severe enough, you can apply for disability benefits. Get with your doctor and compile as much documentation as possible that shows you are unable to keep a job anymore due to your condition. Unfortunately, most claims are denied at first, and you may have to apply a few times before your disability is approved. Hiring an attorney may be expensive, but it will give you a greater chance of getting approved quickly than if you go it alone.
Disability is far better for younger workers than taking Social Security benefits early. If you retire before your full retirement age, your payments will be greatly reduced for each year of life left before your full retirement age. Disability will pay 100% of your monthly Social Security benefits. This will also continue once you reach the retirement age and begin to collect standard Social Security.
If you have no other choice, you can take your retirement benefits as early as age 62: however, they can be reduced by as much as 30% of what they would be if you waited until normal retirement age to take them.
When faced with involuntary retirement, the first thing you should do is take a careful look at your financial situation. Determine your essential and discretionary expenses. What do you have to spend money on, and where can you cut back?
Now that you are retiring, you will no longer be commuting back and forth to your job. If you have multiple vehicles you may want to consider selling one of them now. Not only will this give you more money to work with, but it will also lower your insurance payments. Another benefit of no longer working is that you won’t need to spend money on work clothes. This may be a small benefit, but at this point any good news is welcome.
Look for other areas where spending can be slashed, such as eating out. You will be home more, and cooking is cheaper than going out to eat. Also, make sure you are not wasting food. The average American household wastes approximately 40% of the food they purchase by letting it spoil. Create meal plans, and purchase only the ingredients necessary to complete them.
If you have multiple streaming services, consider cutting these back as well. Yes, you will be home more, but you are now living on a tighter budget. Cable is an expensive luxury that can be eliminated as well. Most local libraries now have DVDs and BluRays available to check out, so this could be a free alternative to these services.
Your cellphone plan is another place you can cut back expenses, or eliminate them altogether. Review your usage and determine if a cheaper plan is viable for you. If your family is on your plan, it may be time to cut the kids off and let them pay for their own phones.
If you have debt, try to pay it off as soon as possible. If you have high-interest debts look into options to consolidate the debt. This will reduce the amount of interest you are paying, and save you money in the long run.
If you own your home, you may think about selling it and downsizing. Smaller homes are easier to care for and cost less to maintain. The taxes, utilities, and mortgages are less expensive for smaller homes as well. If you live in a high-cost area you should find a more affordable neighborhood to relocate to. If you live alone you can also rent out empty rooms for extra income.
Insurance and Benefits
Insurance: If you lose your health care when you are forced from the job market, you are going to have to find alternative medical coverage.
Typically, Medicare is not available to anyone under the age of 65 unless they pay for the coverage. According to medicareadvocacy.org, “Medicare is available for certain people with disabilities who are under age 65. These individuals must have received Social Security Disability benefits for 24 months or have End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS, also known as Lou Gehrig’s disease).”
If you are married, and your spouse is employed, you can try to join their health care plan. If this is not an option you can continue your previous employer’s coverage using COBRA. This only lasts for 18 to 36 months, though, and you will have to pay for your employer’s portion of the premiums as well as your own.
IRAs & 401Ks: Be wary if you are taking money out of your 401Ks or IRAs before you reach 59.5 years of age, as you may have to pay a 10% early withdrawal fee. If you are forced to withdraw money from a traditional IRA early you can try to avoid the penalty tax by using the 72(t) rule, where you receive SEPP payments for 5 years or until you reach 59.5 years of age, whichever comes later.
If you withdraw money from the 401K at your current job, and you are 55 or older, you will not have to pay the 10% penalty for that 401K. Unfortunately, if you roll this 401K into an IRA this option is no longer available.
SNAP Benefits: Another option to help you is the Supplemental Nutrition Assistance Program (SNAP). This program can help provide you with food should you qualify for the assistance.
In conclusion, yes — you can retire early without savings. It may not be easy, and it will likely force you to make some major life changes, but it can be done.
~Here’s to Your Survival!
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