Planning For Early Retirement Due to Health Challenges: Steps to Consider
Many people facing the challenges of Parkinson’s disease, multiple sclerosis, or any one of a myriad of other chronic illnesses may need to cut back on work or retire early because of increasing health challenges. What are some of the financial steps you might consider before formally giving notice:
1. Do not stop work if you absolutely don’t have to unless you first complete a budget and financial projection. Sometimes holding on for as little as 6-12 more months can have a significant swing in your financial security over the next two decades. It may mean another year of savings adding to your nest egg instead of a year of expenses. That, with compound interest over decades to come can be quite powerful. Meet with a financial adviser and push the pencil. Some thoughtful pre-retirement analysis can make a dramatic difference.
2. Rethink what it means to “stop work.” While fatigue or other issues might make it difficult to continue your current job, can you telecommute? Work part time? Consult on a limited basis from home? Start a consulting business for your current employers or others? Working on a reduced basis might provide enhanced financial security, a better lifestyle, more self-confidence, etc. But working can be redefined in so many ways. Plan how and when and to what degree you stop work on the terms that work best for you, not what Ozzie and Harriet perceived it to be. Estimates are that as many as 80% of Baby Boomers will continue do work for some years after the “traditional” retirement age of 65. You may be able to redefine what post-retirement work means for you, even if MS makes you “retire” from your current position at a much younger age.
3. Re-do your budget using what my mother called a “fine tooth comb.” Go through a real accurate budget line by line and identify ways to economize and cut costs. Even if your budget and forecasts seem secure (see number 1 above) building a little extra margin by cost cutting is always prudent. That way, when something you forgot or could not anticipate pops up, you’ll have some leeway in your budget to get by.
4. Evaluate your investment decisions (asset allocation). Too often those entering retirement accept more conservative allocations (more bonds less equities) to be what they believe is more conservative. But with several different chronic illnesses you’re may have almost the same life expectancy as anyone else, but likely to retire earlier. Inflation, even though very low today, may be the biggest financial risk you face. While equities have typically been more of a rollercoaster than other investment options, they have also historically returned more and proven a better inflation hedge. Being what you think is conservative may actually be imprudent and undermine your financial security.
5. A “man’s home may be his castle” (or hers) but it can also be the ruin of a financial future. What are the real costs of running your home over the long term (e.g., you don’t paint every year, but in 10 years it may be essential)? How accessible is your home now and for the future? Might you cut expenses, find a more accessible environment, and make your future more physically secure and financially secure, by moving to a different home? Planning to leave work is an ideal time to reassess all aspects of your life. Perhaps you had to live in a particular area to commute to work. Perhaps with retirement (however you define it) you can relocate to a community, or even a different state, where the cost of living is lower and better more accessible housing is available.
6. Evaluate health insurance options. Is continuing to work on a reduced time basis prudent simply to maintain insurance?
7. Review any benefits you have at work. If your employer is large enough to have an HR department or website with information, take advantage of it. Example, perhaps you have a term life insurance policy included with your compensation. Can you continue it on your own without an exam? Can you rollover employer retirement plans to an IRA? What other benefits and options might exist?
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