What to Do if You’re Forced Into Early Retirement

Join your spouse’s insurance plan. If your spouse has employer-sponsored insurance, you might be able to enroll in their plan, even if it’s outside of their company’s annual open enrollment window. Certain life events, including a job loss, make you eligible for a special enrollment period (SEP), which gives you a 60-day window to enroll in another plan after losing your insurance.

Get insurance through Medicaid or ACA. If you’re younger than 65 and your income is below 138 percent of the federal poverty level ($21,597 for a single person in 2025), you may qualify for Medicaid in the 40 states (and Washington, D.C.) that expanded the program through the Affordable Care Act (ACA). The 10 states that have not expanded Medicaid — Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming — have more restrictive income rules and may consider other criteria, such as your disability status, to determine eligibility. Otherwise, federal and state-run health insurance marketplaces established by the ACA could be a good option. (You can use the 60-day SEP triggered by a job loss to enroll.)

Whichever option you choose, find out whether it allows you to delay enrollment for Medicare. Failing to enroll in Medicare if you’re covered by COBRA, for instance, can trigger lifelong late-enrollment penalties. Moreover, if you decide to join your spouse’s health insurance plan, find out if it requires you to carry Medicare as secondary insurance.

Social Security

If you’re 62 or older, claiming Social Security might seem like a good way to replace the income you lost if you were forced out of the workforce early. However, you’ll have significantly smaller benefit payments for the rest of your life than if you wait to claim Social Security when you reach full retirement age (FRA), which is 67 if you were born on Jan. 2, 1960, or later.

“My last place I would want to draw from would be Social Security,” says Heather Schreiber, founder of HLS Retirement Consulting in Canton, Georgia. “That cash flow is so critical to a lot of people’s long-term sustainability.”

Although individual calculations vary, a rule of thumb is that you can expect to reach the break-even point — when your cumulative benefits from later, larger payments surpass what you would collect from earlier, smaller payments — at around 80 years old. If your health is poor or you have a chronic medical condition that lowers your life expectancy, claiming benefits earlier might make financial sense.

Another consideration: If you’re married, claiming benefits early doesn’t just reduce what you get each month during your lifetime — it also lowers the survivor benefit your spouse could get after you die. A surviving spouse can receive either the survivor benefit or their own retirement benefit, whichever is higher — not both. So if you earned significantly more than your spouse during your career, “this is affecting not one life but two,” Schreiber says.

If a couple needs Social Security income because one spouse is being forced to retire early, one option is for the lower-earning spouse to file for their benefits early so the higher earner’s benefit, and the eventual survivor benefit, can grow, she says.

Severance

A severance package from your employer can provide some financial breathing room. If you have the option of receiving a lump sum or monthly payments over a period of time, consider your debt and spending habits in making the choice.

If you have high-interest debt, paying it off using a lump-sum severance payment could be a smart move, says Christian Merritt, vice president of investment services and wealth management at Members 1st Federal Credit Union in Enola, Pennsylvania. “Debt is one of your biggest hurdles,” he says. Outstanding credit card balances, which carry an average 22.25 percent annual percentage rate, can cost you a lot of money in interest.

That said, a lump-sum severance isn’t right for everyone. You should also evaluate your spending habits and level of financial self-control. “It comes down to discipline,” Merritt says. “If you’re someone who’s going to do better with a monthly sum, that’s going to be a better option” because it reduces the tendency to overspend.

A few other things to consider:

• A lump sum could put you in a higher tax bracket. If you don’t need the money right away, monthly payments might allow you to split your severance income between two calendar years, rather than having it all on a single year’s tax return, says Tara Lawson, a wealth strategist at U.S. Bank Private Wealth Management in Iowa City, Iowa. A lump-sum severance payment, on the other hand, might bump you into a higher tax bracket. “If you can spread it out between years, sometimes that’s beneficial,” she says.
• A big severance payment could change your health insurance math. If you planned to shop for health insurance in a federal or state marketplace, you may be eligible for subsidies in the form of tax credits that will lower the cost of your premiums. Subsidy amounts depend on your income, so a large lump sum could reduce or eliminate the amount of the credit you’re eligible for.
• Make sure you have adequate emergency savings. If you don’t have a sufficient emergency fund — some financial advisers recommend retirees have enough cash to cover 18 to 24 months of essential expenses — putting some of your severance in a high-yield savings account gives you access to the money and allows it to earn interest.
• Keep your money safe while it generates income. If you expect to tap your severance funds within the next couple of years, Lawson suggests placing them in low-risk, income-producing instruments, such as certificates of deposit, the interest from which can help keep inflation from eroding the purchasing power of that payout. You can ladder CDs so that if you need money, say, six months from now, you’ll be able to tap a portion of the funds without paying a penalty. If you’re confident that you won’t need that money until at least three to five years in the future, consider putting it in investments that align with the time horizon and risk tolerance of your 401(k).

Budgeting

An early retirement, especially one that is thrust upon you, calls for a close look at ways to trim your budget. Here are a few things you can do to reduce your expenses:

• Unsubscribe from unused streaming services. More than half of consumers are paying for at least one subscription that they’re not using, according to a 2024 survey by YouGov.
• Lower your home energy bills. Many utility companies will send a professional to your home for free or a discounted price to conduct a home energy audit, which will give you a detailed list of ways you can make your home more energy efficient and cut your bills.
• Put recurring bills on auto pay. Cellphone carriers and cable providers often give customers a discount for signing up to have their bill payment automatically deducted from their bank account each billing cycle.
• Take advantage of grocery store discounts for older customers. A number of supermarkets offer senior discounts — typically ranging from 5 percent to 10 percent off your grocery bill or select items — on a particular day of the week or month.