By Scott Ford, CEO, Founder & Wealth Advisor of Cornerstone Wealth Management Group
Imagine this: you are 55 years old, in your prime earning years and you think you have plenty of time left to work and save for retirement. But then the unexpected derails your best-laid plans. Maybe you’re downsized out of your job, your company offers early retirement, your health takes a turn for the worse, or your spouse or parent suddenly needs full-time care. Regardless of the reason, the outcome is the same – you are forced to retire way before you expected and way before you wanted. Now you are ill-prepared and left scrambling, trying to find a way to make all the financial pieces work together.
You may think this won’t happen to you, but a USA Today study shows that 60% of American workers had to retire sooner than they planned. While the average expected retirement age is 66, most people end up retiring at 62. According to the 2017 EBRI Retirement Confidence Survey, there is a considerable gap between when a person expects to retire and when they actually retire. While 38% of respondents stated that they would like to retire at age 70 or older, only 4% followed through. Most end up retiring earlier and often it’s not by choice.
Here are some strategies to help you prepare for a forced early retirement:
1. Create A Retirement Income Plan
Work with your advisor to do a retirement dry run. Plan for retirement readiness at different stages of life, with the goal of building resources to provide for a reduced but adequate standard of living. Create models for what your retirement would look like if you were to retire ten years before, five years before, and at your planned retirement age. Your standard of living will be different in each model, but by seeing the big picture you will be motivated to do what you need to do to set yourself up for a successful retirement.
You may not be able to plan for everything, but designing a financial framework involves looking at every aspect of your life so you are prepared as possible. Here are a few questions to ask yourself:
- Do you have a family history of health problems?
- Are you taking care of yourself physically?
- What kind of accounts are you invested in?
- Do you know your risk level?
- What if your partner dies? Will the loss of their income devastate your finances?
2. Evaluate Your Budget
Working within a budget and exercising financial discipline is good practice regardless of whether you retire early or not. It doesn’t matter how much you’re worth, if you don’t have a budget you can blow through your money quicker than you realize. Consistently evaluate your needs and wants, cutting back on things in order to save more and reduce your living expenses. If you retire early, you will most likely be forced to retire on less, so get in the habit now of tracking your spending and staying on top of the ebb and flow of your money. This way you will be in control of your finances and be able to work towards your goals instead of crossing your fingers and hoping for the best.
3. Explore Alternative Money-Making Options
If you’re forced to retire early, you may need to get creative with alternative income streams. Consider working part-time or freelancing. You could also pursue income streams that grow over time, such as buying into real estate and owning rental property or turning passions and hobbies into an income on the side so you aren’t depleting your nest egg faster than is healthy.
4. Control Your Emotions
Avoid making poor, short-term emotional decisions that could cost you. Creating a plan before the unexpected happens will help you stay calm and rational when you’re thrown into the fire.
Dalbar’s 2015 Quantitative Analysis of Investor Behavior shows just how poorly investors perform relative to market benchmarks over time. What did they discover to be the biggest reason for underperformance by investors participating in the markets? Their decisions. Behavioral biases lead to poor investment decision-making.
Many investors fall prey to emotional decision-making and, in an attempt to avoid losses or cash in on a potential victory, they buy high and sell low. This behavior lowers their overall return and puts their financial plan in jeopardy. In other words, when life throws you a curveball, don’t panic. Hold tight to the strategy you created with your advisor.
5. Partner With Us
Retirement planning can be complicated and stressful due to the many uncertain factors that go along with it. However, by planning ahead for the unexpected you can reduce the chances your retirement plan will fail.
At Cornerstone Wealth Management Group, we want to partner with you to make strategic decisions about your money and feel confident in your future. If you want to create a comprehensive plan to protect you from life’s surprises, schedule an appointment by clicking here now. If you have questions, you can reach me by phone at (301) 739-8505 or by email at firstname.lastname@example.org.
Scott Ford is CEO, Founder and Wealth Advisor of Cornerstone Wealth Management Group, serving entrepreneurs, business owners, executives, and their families. The firm specializes in business liquidity strategies and SBA financing strategies. It is Scott’s mission to help his clients pursue financial freedom and live a balanced and fulfilled life.
Scott is a Wealth Advisor and Registered Financial Consultant (RFC). He was recognized as one of the 20 Rising Stars of Wealth Management by Private Asset Management Magazine in 2008 based upon assets managed of $1 million or more per client. Since 2005, Scott has been an active financial technical analyst.
Clients often choose to work with Scott because of his experience with the challenges business owners and executives face as well as his firm’s disciplined process. His personal and proactive approach is designed to bring clarity and simplicity to the complex issues of financial management. For over 20 years, he has been helping his clients define and pursue their own unique version of “True Wealth.”
Scott is the author of three books: Financial Jiu-Jitsu: A Fighter’s Guide to Conquering Your Finances, The Widow’s Wealth Map: Six Steps to Beginning Again, and the New York Times Bestseller, The Sustainable Edge: Fifteen Minutes a Week to a Richer Entrepreneurial Life.
He and his wife, Angie, reside in Hedgesville, WV and have two wonderful children as well as a dog and a cat. In addition to spending time with his family, Scott is a voracious reader and enjoys woodworking, Brazilian Jiu-Jitsu, golf, hunting, permaculture and beekeeping; basically anything outdoors.