Would You Be Ready for an Unexpected Early Retirement?
Most people don’t plan for an unforeseen early retirement—and yet, it happens more often than you might expect. Nearly half of retirees left the workforce earlier than planned, and among those, over 60% retired due to circumstances beyond their control, such as company changes or personal hardships like a disability. Given this reality, it’s crucial to take proactive steps now to safeguard your financial future in case of an early exit from the workforce.
Key Steps You Can Take Today
Maximize Savings in Tax-Advantaged Accounts
Saving as much as possible in tax-advantaged accounts can provide a crucial financial buffer if you have to retire earlier than expected. Consider the following options:
Workplace retirement plans (401(k), 403(b)): These accounts offer tax-deferred growth, and after age 59½, you can withdraw funds without penalty.
Individual Retirement Accounts (IRAs): Traditional IRAs provide tax-deferred growth, while Roth IRAs offer tax-free withdrawals on qualified distributions.
Health Savings Accounts (HSAs): HSAs are especially valuable because they allow for tax-free withdrawals for qualified medical expenses at any age. After age 65, funds can also be used for non-medical expenses without penalty (though regular income taxes will apply).
In certain circumstances, you may be able to access retirement funds early without penalties. For example:
Disability or terminal illness
Leaving an employer after age 55 (for workplace plans)
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income
Paying for health insurance premiums after a job loss (for IRAs only)
Reduce Debt Before Retirement
Entering retirement with minimal debt is always a smart move—and it becomes even more critical in the case of an unplanned retirement. Create a strategy to pay down high-interest debt such as credit cards, student loans, auto loans, and mortgages. The less debt you carry, the lower your income needs will be in retirement.
Know Your Essential Monthly Expenses
Understanding your essential expenses can help soften the financial shock of early retirement. These include housing, utilities, food, transportation, and health care. Maintaining a detailed budget will enable you to quickly assess your short-term income requirements while you develop a long-term income strategy.
Secure Adequate Disability Insurance
Disability insurance is a key component of any financial plan. While your employer may offer group coverage at lower rates, keep in mind that you could lose this coverage if you leave your job. Private disability insurance can provide tailored protection, and since premiums are typically paid with after-tax dollars, any benefits you receive are generally tax-free.
Understand Your Social Security Options
If you become unable to work due to a disability, you may qualify for Social Security Disability Insurance (SSDI) benefits. To be eligible, you must have earned a certain number of work credits and have a medical condition expected to last at least 12 months or result in death. SSDI benefits can continue until age 65, at which point they convert to regular Social Security retirement benefits.
If your early retirement is not due to disability, you can begin claiming Social Security retirement benefits as early as age 62. However, keep in mind that starting benefits before your full retirement age (66 or 67, depending on your birth year) will result in permanently reduced monthly payments.
For detailed information about Social Security disability and retirement benefits, visit the Social Security Administration’s website at ssa.gov.
Why Do Nearly Half of Retirees Retire Early?
Note: Retirees could have retired for more than one reason.
Source: Employee Benefit Research Institute, 2024
According to the Employee Benefit Research Institute, 49% of retirees retired earlier than planned for various reasons:
31% cited hardship, including health issues or disability
32% experienced company-related changes
39% had the financial means to retire early
(Note: Some retirees may have had more than one reason for retiring early.)
Health Insurance Considerations
If you leave your job before age 65, you’ll need to find alternative health insurance coverage until you become eligible for Medicare. Options include:
COBRA continuation coverage: This allows you to keep your employer-sponsored health insurance for a limited time, though it can be expensive.
Spousal coverage: If your spouse has health insurance through their employer, you may be able to join their plan.
Marketplace plans: Federal and state-based health insurance marketplaces offer a range of plans, and you may qualify for subsidies based on your income.
Medicare eligibility: If you receive SSDI benefits, you will automatically qualify for Medicare after 24 months.
Don’t Get Caught Off Guard
Life is full of surprises—not all of them welcome. Preparing for an unplanned early retirement is a smart financial move that can help protect you and your loved ones from unnecessary stress. Start now by saving diligently, reducing debt, understanding your budget, and exploring insurance options. Being proactive today can make a world of difference if the unexpected happens tomorrow.
Sources:
Employee Benefit Research Institute, 2024
Broadridge Advisor Solutions, 2025
Disclaimer: This material is for informational purposes only and is not intended as tax, legal, or investment advice. Always consult with a qualified professional regarding your specific circumstances. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.