Sudden reversals of fortune can wreck retirement plans for even the most disciplined savers, particularly when the financial setback is the result of an involuntary retirement.
For evidence of this, look no further than a study released in December by Wellesley, Mass.-based SunLife Financial. Among the report’s findings: Many respondents had only about half of the financial assets they were anticipating at retirement. And many had to reduce expenses, change their lifestyle and rely on Social Security benefits earlier than expected.
“It’s great when clients plan for retirement and do income and expense forecasting,” says Mary Fay, a senior vice president and general manager, annuities, at Sun Life Financial. “But the message of this study is that they should start thinking about a rainy day scenario in the event of a forced retirement.”
The SunLife Financial survey found that 22% of 701 respondents were forced into retirement several years before they had anticipated. The involuntary retirements left most individuals “well short” of their financial goals, adversely affecting the retirement plans of 69% of those polled.
The degree of impact varied inversely with age. Seventy-seventy percent of respondents under age 55 said their forced retirement affected them “somewhat” or “a great deal.” This compares with 72% and 62%, respectively, of individuals in the 55 to 64 and 65-plus age brackets who offered the same response.
Also a factor was net worth. Seventy-seven percent of individuals who held $250,000-plus in assets said the forced retirement impacted them “somewhat” or “a great deal.” Among respondents whose assets ranged from $250,000 to $750,000 and $750,000-plus, 70% and 54%, respectively, answered in similar fashion.
Respondents attributed their involuntary retirements chiefly to “lay-offs/downsizing” and “personal illness or injury.” The latter had the greater impact: 76% of those reporting an injury or illness were significantly affected versus 63% who were laid off. And more individuals experienced an illness or injury (46%) than a downsizing (44%).
On average, the individuals were forced into retirement in their mid-fifties, but had hoped to retire in their mid-sixties. The report noted only a slight gender gap: Men retired on average at age 57, whereas women retired at age 55.
How can advisors help boomers who suffer such a misfortune? Lisa Weinstein, a Hartsdale, N.Y.-based financial planner, says they can first explore clients’ ability to fund a career transition. Money held in savings may be needed, for example, to cover tuition costs at a vocational school or institution of higher learning; or, should the client want to start a business, then tapping a home equity loan.