These are particularly difficult times for workers approaching retirement age.
The COVID crisis is forcing many people who expected to work in their 60s or older to reassess their retirement plans – either because they are worried about the consequences on their health, or because they have lost their job. And it’s hard to say how many will return to work when conditions improve.
But pre-pandemic research shows that feeling pressured to retire earlier than expected is really not that unusual, even when the economy is not as choppy as it is now. The annual EBRI / Greenwald survey on retirement confidence, for example, has always found that a large percentage of retirees leave the workforce earlier than expected.
In the 2019 survey, 43% of respondents said they retired earlier than expected, and among this group, 33% said it was because they could afford it. Another 35% of early retirees said they made the decision to retire due to hardship or disability. And 35% said they took early retirement due to changes in their business. (Retirees could have retired for more than one reason.)
Maybe their service has been cut, or their position has been cut, or maybe they have been reassigned to another location. Leaving was not part of their plan, but when circumstances change, pre-retirees often decide that their best or only decision is to stop working (full or full time) and retire.
If you’re 55 and over and facing a similar decision, and wondering if early retirement is right for you, here are five things to consider.
1. Test your plan to see if you can afford to retire.
An experienced financial advisor using today’s sophisticated planning technology can test your portfolio and determine the strengths and weaknesses of your plan. Maybe you are not as far off reaching your goals as you thought you were. Or maybe working part-time and dipping into your existing funds until you qualify for Social Security is a real possibility. You won’t know until you run the numbers.
2. Find out where you stand with Social Security.
Depending on your date of birth, your full retirement age (FRA) to claim Social Security benefits is between 66 and 67. You can claim benefits at age 62, but there are several downsides to filing early, including:
- The annual earnings test: Each year, the Social Security Administration (SSA) sets an income threshold for retirees who have not yet reached their FRA. In 2020, this threshold is $ 18,240, and the SSA will withhold $ 1 for every $ 2 you earn in excess of that amount. Once you reach your FRA, your monthly payment will be increased to reflect the months in which these benefits were withheld. But if you plan to become self-employed or part-time after claiming Social Security, you will have to face the income limits imposed by the income test.
- A permanent reduction in services: Applying for Social Security before you reach your FRA will result in a permanent reduction in benefits – up to 25-30% less than if you had waited. The only increase you will see after the claim is from the cost of living adjustments (COLA). (And you might not see COLA every year.) On the flip side, if you can wait to file your return until you’ve hit your FRA, you’ll earn deferred retirement credits (up to at age 70) that can give your payments a significant boost. To determine how long you would have to live to make deferred benefits worth it, have your advisor perform a business case for you. and your partner.
3. Identify your health care options if you are not old enough to qualify for Medicare.
Workers who have always had health coverage through their employer are often shocked at how expensive insurance can be when they are alone. Your employer may offer continuing coverage options as part of a severance package or a retirement benefit. Otherwise, we will have to look elsewhere. An alternative is to visit the Health Insurance Marketplace (better known as Obamacare), at www.healthcare.gov. The amount you pay monthly will be based on the plan you choose and your forecast household income for the year.
4. Create a written income plan to move from accrual to distribution.
Once you reach retirement, a funny thing happens: Your paychecks stop, but your bills don’t. You will need to move efficiently from your employer’s salary to your own sources of income. A written income plan is designed to describe where your money will come from (retirement accounts, Social Security, maybe a pension or annuity); when you activate these different sources of income; and what the tax consequences might be as you move into retirement.
5. Consider getting help from a financial professional.
If you haven’t yet met a financial advisor, someone with experience in retirement options, maybe now is the time to finally make an appointment. Many people like the idea of investing in DIY, but planning your entire retirement future takes planning to the next level. (Think of it like this: you might be able to renovate your own bathroom or build a patio, but are you equipped to draw the plans and build your own house?) Hire a knowledgeable advisor, someone you can trust. trust and who you feel comfortable with – can add significant value to your overall plan and help keep you on track with your retirement goals.
Early retirement doesn’t have to be an apocalyptic event. With a good plan in place, you may find that the years to come will be more golden than you thought.
Kim Franke-Folstad contributed to this article.
Investment advisory services provided by Retirement Wealth Advisors Inc. (RWA), a registered investment adviser. Securities offered by World Equity Group, Inc., a member of FINRA and SIPC. Stonebridge Insurance and Wealth Management and Retirement Wealth Advisors are unrelated entities and are not owned or controlled by World Equity Group, Inc. Our company is not affiliated with the US government or any government agency.
The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger has not been compensated in any way.
President of Advisory Services, Stonebridge Insurance and Wealth Management
Tim Kulhanek is a Registered Pension Plan Specialist (CRPS) and President of Advisory Services at Stonebridge Insurance Wealth Management (www.stonebridgeiwm.com), where he specializes in designing income-producing investment plans.