ARE YOU ONE OF THE NEARLY 41% OF AMERICANS who expects to work past age 65? Then you may be in for a big surprise: About half of us end up retiring sooner than we planned¹ — as many people discovered during the pandemic.² The causes vary, from health problems and job loss to happier reasons: Thirty-eight percent of those who retire earlier than planned do so at least partly because they realize they can afford to retire earlier.¹

For the majority of Americans, though, these numbers highlight a big disconnect: The date you intend to leave the full-time workforce is central to crafting your retirement plan, but most of us don’t realize we may have less time than anticipated to prepare. Building that realization into your retirement planning can help you stay focused on saving and investing for the future, says David H. Koh, managing director and senior investment strategist, Chief Investment Office, Merrill and Bank of America Private Bank. That said, even the best prepared among us may end up scrambling to make recalculations, trade-offs and adjustments if we have to leave our jobs early because of a chronic illness or a layoff or the need to care for an ailing parent. That’s when a financial advisor’s insights and steady guidance can prove invaluable.

Many complex decisions may need to be made, even if you have sufficient assets to retire. There’s the potential for relying on an unsustainable withdrawal rate in the early years, the probability of increasing healthcare costs as you age, and the risk of making costly withdrawal and tax mistakes when dealing with multiple retirement accounts. An advisor can help you avoid potential missteps and think through any necessary trade-offs. Here are three key steps to discuss with your advisor if you find yourself needing — or choosing — to retire earlier than you’d originally planned.

Review your income sources and expenses

Take a look at all of your possible sources of income. These could include an early retirement or severance package from your employer, a pension, Social Security benefits and withdrawals from retirement accounts. Then ask your advisor about the pros and cons of tapping these sources now versus later. For instance, accessing retirement accounts earlier than expected can have damaging tax consequences, while taking Social Security benefits earlier will reduce the amount of guaranteed income you have later in retirement, says Mary Jo Harper, senior vice president and wealth management advisor. (For insights on building an early retirement income stream, read “How Will You Replace Your Salary When You Retire?”)

Keep in mind, too, that your expenses likely will look different in retirement. If you no longer have employer-provided health insurance, you may need to cover the full cost of your health insurance premiums before you become eligible for Medicare.

On the other hand, some work-related expenses will be reduced. Think no more commuting costs — or high-end wardrobe needs. In fact, when you do these calculations, you may find that retiring early is more affordable than continuing to work. Lisa Kent, a Merrill financial advisor, recalls one client, who, after taking a close look at the numbers with her, realized that continuing to work would be more costly.

The 65-year-old dentist had planned to work for at least five more years. But after experiencing a large loss in revenue and additional expenses related to putting safe coronavirus practices in place, he discovered that his business was running in the red. “It’s not sustainable for the future without jeopardizing his retirement savings,” Kent explains. “For the first time, he’s thinking of taking on a partner and retiring sooner.”

Rethink your goals

“Your advisor can help you project how long your existing retirement savings could potentially last and suggest ways to adjust — for instance, by rethinking your goals, cutting expenses or taking on consulting work — if you fall short of what you may need for a comfortable future,” Koh suggests.

“Debt payments are often a problem for those who retire early,” Kent adds. “That’s especially true for parents who may have taken on huge college tuition loans.” You may be able to refinance existing loans. Your advisor also can suggest alternate ways of financing large ongoing expenses, such as college tuition. And Kent recommends re-examining your lifestyle or financial goals and looking for trade-offs that could ease your debt burden or lower your expenses. Do you need to continue to save for a second home, for instance? She recalls one client who sold the family vacation home to keep debt payments manageable in retirement.

Revisit your investment strategy

Early retirement means that your savings may have to last for 30 years — or even longer. “A conservative portfolio built largely with investment-grade bonds and cash is unlikely to provide the growth you will need — especially if inflation increases down the line,” Koh notes. At the same time, you’ll need assets, like dividend-paying stocks, that can provide you with a predictable income stream. “Work with your advisor to create a basket of diversified, high-quality investments that will generate retirement income but also provide the growth you may need,” adds Koh. “Given the market volatility that may persist for the foreseeable future, the underlying quality of securities is critically important for early retirees who may be exposed to 10 or more extra years of funding requirements and inflation,” he explains.

“Clearly, there’s a lot of work to be done when you’re faced with earlier-than-expected retirement,” sums up Harper. Creating tax-efficient income streams, adjusting your budget, putting strategies in place to cover health care costs and managing debt are just a few of the issues you and your advisor will have to deal with. “But with the right adjustments to a sound strategy,” Harper says, “you could turn an early retirement into the satisfying and secure time of life you’d always hoped it would be.”