Many Americans are 'forced' into early retirement, study finds

One of the most important financial planning decisions is when to retire. But for a large number of Americans, the timing isn't up to them — in many cases, life decides for them.

That reality is underlined by a new study from Edward Jones, one of the nation's largest financial services firms. The survey found that 40% of financial advisors said their clients retired not at a time of their choosing, but when life circumstances "forced" them to do so.

"We're seeing it for a multitude of reasons," said Jennifer Schoonmaker-Dasch, an Edward Jones financial advisor in Lexington, North Carolina. "It can be a health concern, it can be a downsizing with a severance package — things like that."

Many financial advisors, including Schoonmaker-Dasch herself, have seen this pattern firsthand.

"In my practice, just this year I've had an early onset dementia case, I've had a terminal illness, and I've had a downsizing," she said. "So three [cases] of, 'This isn't what we planned, but this is what's happening.'"

Economic factors are a major driver of early retirement. A study by the nonprofit news organization ProPublica found that 56% of Americans who began their 50s at a full-time job were later "pushed out" early by their employer. Of those, 28% were laid off and 15% were nudged out by deteriorating conditions, such as pay cuts.

Ron Strobel, founder of Retire Sensibly in Meridian, Idaho, said layoffs have forced many of his clients into early retirement, especially in certain industries.

"We are seeing some tech, real estate and construction workers being laid off," he said. "Many of them were nearing retirement, and a last-minute layoff threw a wrench in their gears."

Medical issues are a major factor as well. A study by the Federal Reserve found that 29% of American retirees were driven out of their jobs by health problems, and another 15% said they retired in order to care for a family member.

"Health is another common cause, and it's not exclusive to that person's health," Strobel said. "We have seen numerous forced retirements due to family members needing care, which forced their relatives to retire earlier than planned."

These early retirements are not just a challenge for the retirees themselves, but also for their financial advisors.

"Sometimes we can lay out a beautiful financial plan, and catastrophic scenarios can take us off course," said Ashley Folkes, owner of Inspired Wealth Solutions in Hoover, Alabama. "That is because we are dealing with life on life's terms."

The challenge for advisors is twofold: First, how can they help clients prepare for an unexpectedly early retirement? And second, after it happens, how can they help clients adapt to this new phase of life?

On the preparation side, the wealth managers surveyed by Edward Jones placed a high value on insurance. Fifty-two percent suggested buying supplemental health insurance, while 48% recommended long-term care insurance.

Folkes also recommended something else: stress tests.

"Our goal as financial planners is to prepare clients for the expected but, just as importantly, for the unexpected," he said. "We do that by building in different what-if scenarios and stress-testing the plan with possible life events."

In Schoonmaker-Dasch's experience, the best way to anticipate those scenarios is to have open-ended, probing conversations with clients.

"I really think we can ask those deep discovery questions, and find out where the health and the family relationships and the personal aspirations and the finances intersect," she said. "We have to ask questions so that we understand which lever we want to pull … to remain resilient and flexible in retirement."

Once the client has already retired, many planners' advice is simple: Save, save, save. Forty-eight percent of Edward Jones' respondents said they recommend "adopting a more frugal lifestyle."

"It gets hard sometimes, because there are only a few things that you can do when early retirement happens," Folkes said. "That is, to work part-time or change your lifestyle to meet what resources you do have available."

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Strobel echoed that advice. For his early-retired clients, he recommends a combination of part-time work — such as pet sitting or making deliveries — and, when possible, using emergency funds.

"They may not need a full-time wage in order to fill the gap until their previously planned retirement date," Strobel said. "They just need enough income to make it there."

The one thing that almost all financial advisors agreed on, according to Edward Jones' study, is that retirees should expect the unexpected. Ninety-seven percent of respondents said retirement involves more surprises and challenges than their clients anticipated, and 98% said preparation, flexibility and willingness to adapt are key to success in one's golden years.

"I love that this survey says we found that retirement is full of surprises and challenges," Schoonmaker-Dasch said. "I think life is just full of surprises and challenges, and it continues into retirement."