How to Plan for an Unexpectedly Early Retirement

Summary

WSJ Your Money Briefing

Episode: How to Plan for an Unexpectedly Early Retirement

Date: September 11, 2017
Host: JR Whalen
Guest: Ann Tergeson (Wall Street Journal reporter)
Length: ~8 minutes

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Overview

This episode delves into strategies for individuals facing an unexpectedly early retirement—whether due to health challenges, layoffs, or other unforeseen circumstances. JR Whalen speaks with WSJ reporter Ann Tergeson about practical steps listeners can take to better prepare for the possibility of leaving the workforce sooner than planned, including solidifying emergency funds, understanding severance policies, and being proactive about health and disability coverage.

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Key Discussion Points & Insights

The Prevalence of Unexpected Early Retirement

• Half of retirees leave early:
  • Ann cites the Employee Benefit Research Institute, which found that "about half, anywhere between 40 and 50% of retirees, say that they actually left the workforce before they had planned to." (01:07)
• Common reasons:
  • Health issues and layoffs are the leading factors driving early retirement.
  • “Health reasons and layoffs are often, you know, the reasons that people cite when they say that they retired early.” – Ann Tergeson (01:25)

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Building an Emergency Fund

• Recommendation:
  • Accumulate three to six months of salary as an emergency fund to prepare for the unexpected (01:32-01:42).
  • This fund serves as a bridge, especially valuable if one has to leave due to health and isn’t eligible for severance or unemployment.
  • “Having an emergency fund of three to six months of pay as a rule of thumb is often a good way to sort of serve as a bridge...” – Ann Tergeson (01:42)

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Understanding Severance Policies

• Know your rights and options:
  • Severance is not legally required but is common at mid-size and large firms.
  • Review what’s being offered and consider negotiating for items like outplacement services or partial bonuses.
• Negotiation strategies:
  • Individual negotiations may be difficult during mass layoffs, but collective requests or those with legal grounds (e.g., breach of contract, after filing harassment claims) could have leverage.
  • “If you have a particular kind of legal case to make...you know, that person may have some kind of legal claim for breach of contract...The company would be more willing to negotiate a one off agreement with people who have potential legal claims.” – Ann Tergeson (03:10)
• Caution:
  • Accepting severance often involves signing a waiver that relinquishes your right to sue the company.
  • “Once you agree to take a severance package, you essentially have to sign a waiver waiving away your legal right to sue the employer.” – Ann Tergeson (04:02)

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Health Insurance & Medicare

• Transitioning coverage:
  • If retirement comes after age 65, switch to Medicare by contacting Social Security right away.
  • “If you leave a company and you are 65 or older, you qualify for Medicare. That should be your, sort of, your no-brainer first.” – Ann Tergeson (04:41)

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Disability Insurance

• Employer-provided benefits:
  • Short-term disability is often free; long-term disability can either be employer-paid or offered at group rates for employees to purchase.
  • Those without employer options can buy private coverage.
  • “Long-term disability benefits...they offer a group rate, which is a discount...” – Ann Tergeson (05:06)

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The Importance of 401(k) Vigilance

• Ongoing attention:
  • Don't “set and forget” your 401(k). Continually assess contributions and investment allocations, using available tools for adequacy projections.
  • “There are a lot of tools out there that can...give you some kind of ballpark estimate as to whether what you've saved is adequate or not.” – Ann Tergeson (07:22)
• Planning for longevity:
  • Consider your long retirement horizon given increased life expectancies; don’t assume you’ll need funds only until 80 when men, on average, live to almost 85 (07:52).

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Why Some Want to Work Longer

• Many wish to stay employed past retirement age due to longer lifespans, a lack of defined-benefit pensions, or simple enjoyment of their work.
• “Some people come up against what would normally be considered a retirement age and they feel they haven't saved adequately.” – Ann Tergeson (06:12)
• “A lot of people also just really like what they do or they like to work.” – Ann Tergeson (06:28)

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Notable Quotes

• “About half, anywhere between 40 and 50% of retirees, say that they actually left the workforce before they had planned to.” – Ann Tergeson (01:07)
• “Once you agree to take a severance package, you essentially have to sign a waiver waiving away your legal right to sue the employer.” – Ann Tergeson (04:02)
• “If you leave a company and you are 65 or older, you qualify for Medicare. That should be your...no-brainer.” – Ann Tergeson (04:41)
• “Don't assume that you're going to die at age 80 when in fact…the average man lives to almost 85.” – Ann Tergeson (07:52)

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Timestamps for Key Segments

• Prevalence of early retirement: 01:07
• Building emergency funds: 01:32
• Severance negotiation and legal considerations: 02:16-04:33
• Health Insurance transitions: 04:33
• Disability insurance overview: 05:06
• Why people work longer, 401(k) management: 06:12-07:52

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Conclusion

The episode offers a concise, expert-driven checklist for anyone who might face early retirement—expected or not—highlighting the importance of preparation, self-advocacy, and a proactive approach to both financial planning and employer-provided benefits. As our working years stretch and life expectancy grows, everyone's best defense is information, flexibility, and ongoing attention to financial and health-related buffers.

Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Bill]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition. This is yous Money Matters from the Wall Street Journal.

[JR Whalen]

Welcome to youo Money Matters. I'm JR Whalen in New York. It's fairly easy to find resources to help you plan for retirement, but planning for an unexpected retirement, well, that's not so easy. There are some key steps we can take to help prepare for the unexpected. And Wall Street Journal reporter Ann Tergeson joins us to discuss. So, Ann, an increasing number of Americans say they want to remain in the workforce past age 65, but many are forced to leave well before that.

[Ann Tergeson]

Yeah, that's right. Sort of. A long standing survey by the Employee Benefit Research Institute indicates that about half of anywhere between 40 and 50% of people of retirees say that they actually left the workforce before they had planned to.

[JR Whalen]

And that could be a lot of reasons, but health reasons are among them.

[Ann Tergeson]

Well, right. So health reasons and layoffs are often, you know, the reasons that people cite when they, when they say that they retired early.

[JR Whalen]

So let's go through a couple of recommendations you've outlined in your Wall Street Journal story. Now, first of all, you say try to accumulate three to six months of salary in an emergency fund.

[Ann Tergeson]

Right. So the issue is, you know, with almost half of retirees saying that they were forced to retire earlier than they had expected to, it seems like that should be something that people should prepare for the contingency of. So having having an emergency fund of three to six months of pay as a rule of thumb is often a good way to sort of serve as a bridge, particularly if you have to leave because of health reasons and you don't qualify for some kind of severance or unemployment insurance.

[JR Whalen]

And you say also to do a lot of research on the severance policy where you work.

[Ann Tergeson]

Right. So if you are laid off, chances are especially if it's in a large layoff, the employer does not have to offer severance. But as a general practice, many do, especially, you know, the mid size and large firms do. So it's important to understand, you know, what you're being offered in terms of, you know, how much pay you're being offered. There are also some things that you may be able to bargain for. You know, for example, some people can bargain perhaps for outplacement services if they want help finding their next job. It may also be that if you are typically, if you typically receive a bonus, you know, you may be able to bargain for a bonus for the portion of the year that you are actually on the payroll. Those are just some of the things that it's important to kind of know whether they're in the package or whether maybe that's something that you can ask for.

[JR Whalen]

So people should feel comfortable trying to negotiate along the way.

[Ann Tergeson]

Yeah, I mean, in effect, speaking to some attorneys, employment attorneys, it kind of depends on a couple things. Like number one, if it's a mass layoff, chances are you as an individual are not going to have a lot of success in negotiating for something just for yourself. So, you know, getting a large group of people who will say, yes, we all together want or are asking the employer for this, that can help. The second thing is I was told that if you have a particular kind of legal case to make that can be made, for example, somebody who was just recently hired with promises of lucrative compensation, and then the company hits hard times and they go ahead and they lay that person off right away, you know, that person may have some kind of legal claim for breach of contract, somebody who maybe filed a sexual harassment claim, you know, they could potentially have a legal claim. So it could be that a company would be more willing to negotiate a one off agreement with people who have potential legal claims. Because it's very important to know that once you agree to take a severance package, you essentially have to sign a waiver waiving away your legal right to sue the employer. So unless the waiver is drafted improperly, you're going to lose that right.

[JR Whalen]

And you also mentioned health insurance and how people should research about Medicare being a replacement for health insurance.

[Ann Tergeson]

Right. So it depends on your age. I mean, if you leave a company and you are 65 or older, you qualify for Medicare. So that should be your sort of your no brainer first. That should be what you do. You call Social Security and you sign up for Medicare.

[JR Whalen]

In your story, you also write about disability insurance and how some employers offer it at a discounted rate to help an employee plan for early retirement.

[Ann Tergeson]

Exactly. So you know your employer, as an employee benefit, may offer you a short term disability policy for free. That's somewhat common. Long term disability benefits. Some employers pick up the cost and offer that for Free. Many more offer it as part of a group. Many more offer it to employees who can then opt to buy it or not. And often what they do is they offer a group rate, which is a discount, typically at a discount to what you would pay in the private market if your employer doesn't offer anything. There's any number of insurance companies out there that offer long term disability coverage.

[JR Whalen]

We're speaking with Ann Tergeson about preparing for an unexpected early retirement. And you're listening to youo Money Matters from the Wall Street Journal. Thanks for listening everybody. And when it comes to employees wanting to stay in the workplace past 65, we're living longer. And lots of medical solutions out there to keep people healthy. And so this, this issue is really not going away.

[Ann Tergeson]

No, it's not. And I think, you know, I think people also, in the era of the 401k versus the era of the defined benefit pension plan people, they're responsible for saving themselves. And some people come up against what would normally be considered a retirement age and they feel they haven't saved adequately. So there's a lot of reasons why people want to stick around. A lot of people also just really like what they do or they like to work. So when they look and they say, I'm likely to live another 30 years, why should I stop working right now? So there's a lot of reasons why people want to stay, stick around. But there also are a lot of reasons why people do have to leave jobs before they had expected to.

[JR Whalen]

And you mentioned 401k. And it's always a good idea for someone to pay close attention to the investment formula they have in their 401k. And I guess that a lot of us are guilty of just contributing to it and putting it aside and letting it accumulate. And then you think, well, I'll get to it later on when I'm in my 40s or my 50s. But it's a good idea, I suppose, to really keep up with the investments and the contributions and having to re juggle that as the market changes.

[Ann Tergeson]

Right. I mean, there are a lot of tools out there too that can sort of give you some kind of ballpark estimate as to whether what you've saved is adequate or not. It's kind of hard to know for sure unless you have a good sense for what you need to spend in retirement as well. And for a lot of people before they retire, it's hard to know that for sure. But you can sort of look at what you're spending now and see whether what you've saved can sustain that as a lifestyle for, you know, 30 some odd years just because you don't want to assume that you're going to die at age 80 when in fact, you know, the average man lives to almost 85.

[JR Whalen]

Well, that's Wall Street Journal's Ann Tergerson joining us here in the studio. Thanks so much for being with us.

[Ann Tergeson]

You're welcome.

[JR Whalen]

And thank you for listening to youo Money Matters. I'm JR Whalen in the newsroom here in New York.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Bill]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.