Your Retirement Questions Answered, Part II--If You're Forced to Retire - Live Like a Mensch
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Your Retirement Questions Answered, Part II--If You're Forced to Retire

"I'm making a fortune knitting Jayne's cunning hats for Etsy!"


Your Retirement Questions Answered has returned!

Today, we'll be answering the question posted by regular commenter frugal_fun:

Well, this might not be the best topic, but a chapter might be about what the numbers look like if you retire only when you've become physically unwell would be helpful for me. (And unfortunately, I'm not talking about covering the medical bills, either.)

I don't think we're going to be able to save enough to replace our income for 20+ years without a pension plan or SS mostly to cover it. It's a gargantuan task if you are on a fixed income but variable expenses like most workers. (Let's face it "fixed income" for seniors is a euphemism for "low income". Most of the US is on a fixed income. ;))

First, frugal_fun, I love your description of "fixed income" as a euphemism for low income. I must say, I have wondered for years why a retirement income is referred to as fixed when I myself have been on "fixed" incomes while working various jobs. (Yes, there were opportunities for raises/advancements, but they didn't happen particularly often.)

As to your question, forced retirement is a toughie. Whether it comes about because of failing health or because of late-in-career job loss, it can be financially devastating if you don't have enough money set aside--and let's face it, how many people really do have enough money set aside?

However, there are five proactive measures you can take now and in the future in order to keep a forced retirement from making you eat cat food in retirement:

1. Find out what you can expect from Social Security Disability and Retirement benefits. Believe it or not, at least the customer service side of Social Security has embraced the 21st century, and you can find an incredible number of user-friendly apps and information online. In particular, you can use the Social Security disability calculator, which provides you with a (very rough) estimate of your disability benefits. There are also several Social Security retirement benefits calculators, which you can personalize and use to get anything from rough estimates to exact projections of your retirement benefits.

For a fun party trick, go ahead and look up what you can expect from Social Security. It's pretty illuminating--and it gives a good idea of what your life in forced retirement would be like if you put no other money aside. (NOT recommended!!)

2. Invest in adequate disability insurance. As I mentioned last year, I'm quite the convert to disability insurance. If you are concerned about the possibility of losing your ability to work, then disability insurance is a must.

Unfortunately, there are several things that can disqualify you from a disability policy--pre-existing conditions, physically demanding jobs, and jobs with irregular income (like freelancing or owning your own business). But if you're able to get your disability insurance on, do it. Do it now.

3. Start a second income stream. This was the sort of advice that used to annoy me about reading personal finance articles when I first starting writing in the genre. Many of my colleagues would beat the drum of the importance of additional streams of income, and I often wondered what parallel universe they lived in and exactly how many extra hours per day they enjoyed in that universe.

I'm now understanding better why second income streams are important. We rely on our jobs for so much, and if anything happens to our ability to perform those jobs, having something already set up to fall back on is an incredible gift to ourselves.

I personally feel like every family should strive to have a two extra income streams, preferably one passive and one active (even though I am generally somewhat skeptical of the claims about "passive" income). But, if you're able to collect rent from a boarder and also sell your crafts on Etsy, then you know that something can and/or will be coming in if you lose your job or you suffer from failing health.

Please note--this is one of those things where I do not practice what I preach. Someday, I hope to be in that position if I can continue to write and earn money from writing I've already done. But I entirely understand how this can be much easier said than done.

That being said, my sister and brother-in-law are a living embodiment of how this works. Dave owns a house in one of the cities where he was previously stationed, which he rents out. And he takes gorgeous photographs that he sells on Etsy. In addition, my sister does freelance editing and writing on top of her day job.

4. Know your bare minimums. We all get pretty used to lifestyle creep, and so it can be tough to remember just how little we all need to be happy. A friend told me about an elderly retiree friend of hers who lost everything and is now living in a low-income home for seniors under very reduced circumstances. But as long as this retiree can get books from the library, she is perfectly content, despite the fact that her life is no longer like it used to be.

That's why I think it's a good idea to really think about what you need to feel good about your life and yourself, and even practice living that way (as much as possible) before retirement. Then you won't feel resentful of the changes in your life if you are forced into an early retirement.

5. If you are forced to retire early because of a layoff, be an assertive negotiator. Granted, this is not helpful if health is the reason why you have to hang up your hat, but it is something that many people might be too shell-shocked to consider when they are laid off. So, be prepared to fight for a generous severance package. The worst they can say is no.

Have any of you experienced a forced retirement? What have you learned from the experience?



bobi said:

I agree with most of your points and while there's nothing wrong with a second income stream, I think it's better if you just learn to live beneath your means. The security of a second income stream is often not equal to the time spent developing and maintaining said stream. The most important thing you can do to be ready for retirement is to eliminate as many bills or financial obligations as possible: the less money you require to maintain your lifestyle the better off you will be.

August 13, 2013 5:27 PM

Emily Guy Birken said:

@bobi, I absolutely agree with you that we should learn to live beneath our means. But I also know there's only so much money that can be cut from a budget, while there's (theoretically) no limit on additional income that you can make. So I'd love to see people do both.

August 14, 2013 12:26 PM

haverwench said:

Another point to consider: if you're part of a two-income household, you already have two income streams. For example, I have my husband's salary and my own freelance income. If I go for a long period without work, we can get by on what he makes; if he were to lose his job, we could (with some belt-tightening) make ends meet on what I make until he managed to find a new job. So we'd only really be in trouble if both happened at once. Admittedly, it would be nice to have an additional source of income, such as a lucrative hobby, that we could push into high gear to help take up the slack if one of us were jobless--but it's not crucial, precisely because (as bobi says) our expenses are so much lower than our combined income.

August 15, 2013 10:04 AM

frugal_fun said:

Cool, I'm here again. :) I should start charging for my comments - (hey, second income stream!!!) *grin*

*Ahem* Anyway, I do agree with Haverwench that defacto, 2 income households have some built cushion as long as they don't up the lifestyle. Unfortunately, though, 2 incomes usually mean supersizing expenses, too. It's really a bummer because they could really have some peace in knowing that only 1 income is necessary at any one time.

"That's why I think it's a good idea to really think about what you need to feel good about your life and yourself, and even practice living that way (as much as possible) before retirement. Then you won't feel resentful of the changes in your life if you are forced into an early retirement."

I think thinking about what makes you truly happy good idea really at any age. My only hesitation is that I'm on the edge (which varies from month to month) on frugal burnout. The kids aren't here forever. I'd like to live in a well maintained house, etc, etc.  So in that sense, we have some expenses that I'm hoping would disappear once we got there.

August 15, 2013 7:26 PM

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