Forced Early Retirement

Victoria Larson | Feb 17, 2026

Scrutinize the severance package

When offered, these buyouts can provide valuable financial breathing room. While many are negotiable to some extent, they often are complicated. Best: Avoid taking a lump sum, which can push you in a higher tax bracket. Monthly payments allow you to split your severance income over two or more calendar years and lower your IRS bill. If you aren’t eligible for Medicare yet, access to an employer health insurance plan might be the most valuable item to negotiate.

Nail down your health insurance until age 65.

Being out of a job often means being left without coverage until you’re eligible for Medicare. Three options…

COBRA
If you worked for a company with 20 or more employees, federal law allows you to continue your existing health insurance for up to 18 months—but you have to pay for it. If you lose your job within 18 months of when you will turn 65, you can keep COBRA for a covered spouse and dependent children for up to three years even if you go on Medicare yourself. COBRA can be expensive, but depending on your situation, it may be your best option.

Your spouse’s employer-sponsored insurance
I’ve had clients whose spouses went back to work just so the couple could get health-care coverage, says Larson.

ACA insurance
If you lose your job, you can buy coverage through federal and state-run health insurance marketplaces in a special 60-day enrollment period that starts on the last day of your employer-based health insurance. Without a job, you may qualify for available subsidies if your income is less than 400% over poverty levels (e.g., for 2026, that is $128,600 for a family of four).

Make a smart decision about Social Security

The impulse to claim Social Security benefits right away is strong, but for many, this is an expensive mistake. Reason: Most people’s objective should be to maximize lifetime payouts. If you claim as early as age 62, you reduce your annual Social Security benefits by 30% forever…automatic inflation increases are on a smaller base…and the survivor benefits your spouse could get after you die also will be lower. For couples: If you really need the income from Social Security immediately, consider having the lower-earning spouse file for his/her benefits early so the higher earner’s benefit can continue to grow.

Consider strategic part-time work

Let go of the idea of that you need to replicate your prior position or wages. Taking any kind of job gets you out of the house and can help bridge the financial gap until your planned retirement date. Even if the salary doesn’t cover all your expenses, part-time income is useful in reducing withdrawals from retirement accounts and delaying claiming Social Security benefits.

Adjust your decumulation plan

Forced early retirement often means making prudent adjustments to spending down your savings, not radically changing your plan.

Step #1: Add up your annual income from sources such as Social Security, pensions, annuities, part-time work and retirement-account withdrawals.

Step #2: Compare this figure to your cash-flow needs.

Step #3: If meeting your long-term needs is no longer sustainable, look at tradeoffs in your annual spending. Example: I worked with a couple who owned a home with a large mortgage in Sarasota, Florida. The husband was forced to retire earlier than planned. We re-ran the numbers, and they realized they could maintain their daily lifestyle as long as their stock portfolio didn’t suffer through a bear market in the first five years of retirement. But rather than take that chance, the couple chose to sell their home and downsize to one they could buy with cash outright.

Leave your investment portfolio allocation alone if you already have a reasonable and balanced portfolio of stock and bonds that allows you to sleep at night. Raising your stock allocation and taking greater risks to pump up your returns can backfire if you wind up panicking and selling during market turbulence. The other extreme is also problematic. I had a client who was forced to retire early and moved his entire million-dollar portfolio into low-yielding CDs—but there were better investments to get downside protection without making such big sacrifices in performance such as annuities and alternative investments.

About the Author

Victoria Larson, RICP® is an independent, fiduciary financial advisor and founder of Vitality Investments. With over 20 years of experience in the financial services industry, she specializes in holistic, retirement-focused planning. Her work helps clients protect, grow, and use their assets in ways that align with their goals and values. Victoria partners closely with individuals and families to build income security, minimize taxes, and prepare for life’s financial uncertainties.

^{Hypothetical examples used are for illustrative purposes only.}

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Forced Early Retirement