Your retirement plan may have a ‘blind spot’ that could leave you without enough money

Planning for the unexpected should be the most expected part of your retirement plan.

You may have a date in mind when you want to retire, but your job or health may not last as long as you expect.

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As many as 42% of Americans retired earlier than planned, and only 5% retired later than expected, according to a new study from the Allianz Center for the Future of Retirement, part of Allianz Life Insurance Co. of North America.

Most Americans (53%) say that they have a specific age in mind at which they plan to retire.

For those who aren’t confident in their retirement savings, working longer is their plan to bridge the savings gap — as many as 80% of Americans think retiring later and working longer would help to financially support all the things they want to do in life. But circumstances such as unexpected job loss, healthcare issues or caregiving responsibilities can interrupt even the best-laid plans.

“These findings show that many retirement plans may have a blind spot, because people assume their job and health will stay stable right up to retirement,” said Kelly LaVigne, vice president of consumer insights at Allianz Life.

“When retirement comes early, it can quickly turn a solid plan into a fragile one,” LaVigne said. “That’s because fewer working years and more retirement years can put significant pressure on savings — especially when early retirement isn’t a choice.”

The study comes as Americans are living longer, spending up to decades in retirement with minimal savings. The median amount American workers have saved for retirement is just $955, according to the National Institute of Retirement Security. Among workers who had at least a positive retirement-savings balance, the median savings totaled $40,000, NIRS said.

To brace for unexpected hiccups in your earnings or health, you need to plan for all scenarios rather than having a theoretical retirement date circled on your calendar. Plan as if you’re going to retire early and hope you can continue to work past that date, financial advisers said.

“You have to plan for the worst-case scenario. Just for financial purposes – financially strive for early retirement and then if you end up working longer, it’s a bonus,” said Eric Bond, president of Octave Wealth Management.

“So many people are being forced out of work and forced into retirement by their jobs or their family responsibilities. Forced to retire to take care of grandkids because child care is so expensive and homeownership requires both parents’ incomes. We see that way more often now,” Bond said. “Others are being pushed out of work before they’re ready. You should do the numbers to imagine you’re retiring early — to brace for that. You always want to be in control and to make that decision yourself, but it’s not always possible.”

The most common age to take Social Security is 62, when 29% of beneficiaries claim, according to the Social Security Administration.

Claiming Social Security at 62 locks them into a smaller monthly benefit. The full retirement age is 67 for those born after 1960, but a maximum monthly benefit is given to those who wait until 70 to claim Social Security.

Only 4% of retirees wait until 70 or later to claim Social Security, according to a 2024 study by nonprofit Transamerica Center for Retirement Studies in collaboration with the Transamerica Institute.

“Plan on retiring at 62, but keep working as long as you can. No one ever says, ‘I have too much money.’ You should plan for the bad stuff but keep working and keep moving — a body in motion stays in motion. Stay active for your physical and mental health,” Bond said.

In addition to planning for all contingencies, take advantage of any extra ways to save and invest, such as catch-up contributions for people 50 and older, Bond said.

Retiring earlier than planned means you have to squeeze out every extra dollar possible, which could include earning extra income through a side gig and making strategic tax-planning choices, said Kelly Gilbert, a financial adviser and owner of EFG Financial.

“You go from having discretionary income to being on a fixed income. That can have a big emotional impact. There’s no more fun, no more playing. It can be hard to accept,” Gilbert said.

Saving and planning are keys to a successful retirement, but amassing more savings is getting more difficult as Americans are struggling with rising costs of everyday basics like groceries, gas, healthcare and housing.

“It’s really save, save, save and save some more,” Gilbert said. “And have a plan in place for retirement so that when the unexpected happens, you’re not reacting as much as you are adjusting a plan. You don’t want to be coming up with a plan at the time of an emergency.”

“Most people’s retirement plan is hoping for the best. Most of America has never done a financial plan,” Gilbert said. “You need to have a plan and run a couple of scenarios because I know darn well things are going to change. All of your retirement and all of your life are a series of adjustments. It’s not gloom and doom. It’s just life.”

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