Early retirement may sound appealing, but for nearly half of Americans, it’s an unplanned reality that can disrupt financial stability.
According to a study from the Employee Benefit Research Institute, nearly half of American workers––46 percent––can expect to be forced into involuntary retirement.
That is, you have a nearly 50% chance of having to leave the workforce early, giving up potentially years of earnings and retirement contributions, because of circumstances beyond your control.
Another separate study from the Center for Retirement Research from Boston College, with different methodology, estimates that the number of Americans who retire earlier than they planned is 37%. That’s – still a very high number.
Meanwhile, the median retirement age, 62, is well short of the 65 years of age normally required to qualify for Medicare benefits.
In this article, we’ll explore what’s behind those numbers and some ideas on how you can protect yourself against this significant financial risk.
Why Do People Experience Involuntary Early Retirement?
Involuntary early retirement can strike when least expected, often disrupting carefully laid plans.
For many professionals aged 30 to 64, being forced out of the workforce can be financially and emotionally devastating. It’s not uncommon either. According to the National Association of Insurance Commissioners, about 40% of people in nursing or assisted living facilities receiving long-term care services are between 18 and 64 years old.
These people didn’t get to retire on schedule.
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Common Causes of Involuntary Early Retirement
Generally, forced early retirement results from one of four main causes:
- Injuries
Workplace accidents and personal injuries can significantly impact your ability to continue working. The U.S. Bureau of Labor Statistics reports over 2.8 million nonfatal workplace injuries annually. Even non-work-related injuries can force early retirement if they prevent a return to the workforce. - Chronic Illnesses
Health issues such as heart disease, cancer, and other chronic illnesses are leading causes of early retirement. When medical conditions make it impossible to maintain full-time work, it can have long-lasting financial repercussions. - Workers Compensation Events
Workers compensation claims result from job-related injuries or illnesses. While helpful for temporary financial relief, they rarely cover long-term needs. Many individuals are forced into early retirement when their injury prevents them from returning to their job. - Layoffs and Downsizing
Economic factors like layoffs, restructuring, or automation can lead to involuntary early retirement. The COVID-19 pandemic highlighted how quickly and unexpectedly this can happen, with thousands of professionals over 50 experiencing job losses they cannot recover from. - Family members in need of a caretaker
In some cases, early retirement isn’t caused by personal injury or illness but by the need to become a part-or-full-time caregiver to a parent or loved one.
How to Protect Yourself
Given the risks of involuntary early retirement, it’s crucial to have a plan to safeguard your financial future with these 5 strategies:
1.) Disability Income Insurance
Disability income insurance is one of the best tools to protect yourself from financial disaster if you’re injured or become seriously ill.
This coverage provides income replacement if you’re unable to work due to a medical condition. Group disability insurance is often available through employers, but it’s wise to consider an individual policy as well, as these typically offer more comprehensive protection.
Additionally, if you pay your own premiums for disability insurance, any benefits you receive are tax free. Unlike employer-sponsored group disability insurance plans, your personally owned disability policy is fully portable—it goes with you if you leave the company.
This can be a critical consideration if your health changes before you leave your current employer.
2.) Long-Term Care Insurance
Long-term care insurance (LTC) helps cover the costs of services like nursing home care or home health aides.
Without LTC insurance, the costs can quickly drain your savings. Considering that 70% of adults over 65 will require some form of long-term care, this protection is crucial.
3.) Health Insurance or Health Sharing Plans
Access to quality healthcare is vital if you’re forced into early retirement due to a health condition. Whether through a health insurance plan or a health sharing plan, having coverage ensures you can afford the necessary treatments without dipping into your retirement funds.
Health sharing plans offer a more affordable alternative to traditional insurance for those looking to keep premiums low, but make sure to understand the limitations of these plans.
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4.) Workers Compensation Insurance
Workers compensation insurance provides benefits to those injured on the job.
While it’s helpful in covering medical costs and providing a portion of your lost wages, it’s essential to have other forms of protection like disability insurance.
Workers compensation won’t replace the full income you could lose in a severe case, and it generally doesn’t cover non-work-related injuries or illnesses. So worker’s comp will cover limited treatments for your work-related injury or illness. But you’ll still need a health insurance or health sharing plan to help with everything else.
5.) COBRA Continuation Coverage
If you’re laid off or forced to retire early from your employer and you have to leave their group plan as a result, COBRA allows you to continue your employer-sponsored health insurance for up to 18 months.
However, COBRA premiums can be expensive. In most circumstances, it’s wiser to purchase your own insurance policy using your 60-day special enrollment period privileges than to continue with COBRA. That way, you can potentially receive a subsidy to make your premiums more affordable.
If you’re in good health, and you don’t expect to receive a subsidy, consider a health sharing plan. These plans cost up to 50% less than a traditional health insurance plan. And they still provide tremendous protection against unexpected high healthcare costs.
Medicaid may offer an alternative if you qualify based on income, providing access to essential healthcare services at little to no cost.
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Take Action Now
The best time to protect yourself is before an event forces you out of the workforce.
If you wait too long, and you have a significant medical event, most of your best options will no longer be available to you.
Disability income insurance, long-term care insurance, health insurance, and workers compensation coverage are essential safeguards. By acting while you’re still healthy and employed, you can secure better rates and coverage options.
To explore your options and ensure you’re adequately protected, contact an HSA for America Personal Benefits Manager. They can help you put the right coverage in place, so you can enjoy peace of mind, no matter what life throws your way.
For Further Reading
Hi! I’m Misty Berryman, and I’m one of your Personal Benefits Managers. I like working with HSA for America because we’re creating solutions to healthcare problems. Our focus on money-saving alternatives like HSA plans and health sharing programs, and the variety of health share programs we offer, are what set us apart. Read more about me on my Bio page.
