Planning for retirement is a long-term strategy, but sometimes carefully laid plans go awry. If you’re facing an earlier retirement than you planned, it can feel overwhelming. So what are your next steps?
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Imagine this: John — a 57-year-old with around $500,000 in savings and no debt — has been forced to retire earlier than planned due to health issues. He’s unsure how to begin retirement with a much smaller nest egg than he would have liked and make his savings last a good 10 years more than he planned for. Like many Americans forced into early retirement, John is now trying to figure out how to build a new retirement plan for the future.
If you’ve been forced into retirement sooner than expected, you’re not alone. Nearly 60% of American retirees retired earlier than they planned, according to a Transamerica Institute survey conducted in 2023 [1]. Among them, nearly half (46%) retired for personal health reasons such as physical limitations or disability (33%) and ill health (28%).
It’s not necessarily the end of your financial goals, but it does require a shift in mindset, a fresh look at your income sources, and a plan to make your money last.
“What to do when you health forces early retirement”
The reality is, financial plans need to be able to evolve as your life changes. And it’s one of the many reasons having a solid emergency fund is so crucial. Those savings can help you avoid selling investments and bridge the gap while you figure out what benefits are available to you.
Then, you need to spend time determining what benefits you’re entitled to and how they fit together. Your options may vary based on employer, insurance coverage, and age, but here are the main programs to consider:
Social Security Disability Insurance (SSDI)
If you’ve worked long enough and paid into Social Security, you may qualify for SSDI. This benefit is based on your previous earnings, not your household income, and is designed to replace a portion of lost wages if you are out of work for 12 months or longer.
The average SSDI payment in 2025 is approximately $1,600 per month, although higher earners may receive up to $4,018 per month. You can check your personalized estimate through your My Social Security account. Your family members may also be eligible for separate benefits.
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VA disability benefits
For veterans, VA disability compensation can supplement SSDI if the injury occurred or was worsened by military service. The monthly benefit varies based on your disability rating and the number of dependents. According to Veterans Guardian, a veteran with a spouse and a 50% rating receives about $1,200 per month, while a 100% rating receives around $4,000 [2]. These benefits are tax-free, which can make a significant difference when budgeting for the long term.
Health coverage
Health care is often the biggest concern for early retirees. If you qualify for SSDI, you’ll automatically become eligible for Medicare after a 24-month waiting period. During that gap, you may be eligible for Medicaid, which provides low-cost or free coverage based on income and assets. If your spouse is still working, joining their employer’s health plan may be another option — this is often the most straightforward and stable route. You may also be eligible for health insurance through a former employer under COBRA.
Planning for the future
Forced retirement can be jarring both emotionally and financially, but it’s not a dead end. Once you’ve secured your income and health coverage, it’s time to rethink your spending and savings strategy.
1. Adjust your withdrawal rate
The 4% rule — withdrawing 4% of your portfolio the first year and then adjusting for inflation — is a common retirement strategy, but for early retirees, it may be too aggressive. The 4% rule is meant to make your portfolio last 30 years, but in this case, aiming for 3% to 3.5% may help your savings last longer. That means withdrawing $15,000 to $17,500 per year from a $500,000 nest egg. Keep in mind, you may not be able to pull from retirement accounts without a penalty before the age of 59 ½. There are exceptions that may apply to you.
2. Revisit investment risk
If you had a growth-heavy portfolio before, consider rebalancing to preserve assets. A 60/40 mix of stocks and bonds can help strike a balance between growth and stability. A popular rule of thumb is to subtract your age from 110 to know how much of your portfolio should be in equities. In your case, it would be 53%. Consider keeping at least a year of living expenses in cash or short-term CDs for emergencies and to avoid selling investments during market dips.
3. Create a disability-appropriate budget
Now is the time to map out what your post-retirement lifestyle will really cost. Factor in rising medical expenses, inflation, and one-time costs, such as moving or home modifications. Tools like the Consumer Financial Protection Bureau’s budgeting worksheets can help identify where your money goes and what can be trimmed without sacrificing quality of life.
4. Consider tapping insurance policies
If you have life insurance, you may be able to use it as an asset by taking a loan from it, withdrawing from it or surrendering the policy. Review the tax implications and ensure your spouse is financially protected.
For John, and anyone in his shoes, the goal isn’t to replicate the retirement they once envisioned — it’s to create a new plan that works. With steady planning and the right safety nets, that’s still entirely possible.
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Article sources
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Transamerica Institute (1); Veterans Guardian (2)
This article originally appeared on Moneywise.com under the title: I’m 57 and I had to retire a decade early due to disability. How can I prepare for a longer retirement than planned?
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.