Let’s face facts here. Millions of people are out of work right now and despite the mantra of “we gotta get back to work” being chanted by everyone, the truth is that many jobs will be permanently lost even as we reopen the country. Businesses are closing for good all over the place and larger ones are cutting back, if not closing. Businesses are changing and becoming much more quickly tech driven and that means many older workers may no longer have the skills they need to adapt to a changing work environment. It all means that “retirement” may be the only real viable road for many after the COVID-19 pandemic. An unplanned early retirement.
This Year 2020
More people will retire this year than in any year I can recall. Some of that is because of the pandemic. The forced job loss and the mere fact that many just won’t be able to find work again, especially older workers, will push the number higher.
In fact, according to the Bureau of Labor Statistics, the unemployment rate for Americans age 55 and older jumped from 2.6% in February to a whopping 13.6% in April. Many who lose their jobs will be forced into retirement.
You may have thought about retirement, but have you really thought about it? There are real retirement steps to consider.
What to Consider for an Unplanned Early Retirement
A retirement budget
If you are even thinking about retirement, and even more importantly if you are nearing age 62 and thinking about it, step one is to sit down and actually create a mock retirement budget. Understand what your income will be when the job is over and the unemployment checks finally stop coming in.
Alternate streams of income, both active and passive, are necessary and real options.
Think about it. More money every month—even small ways to bring it in—means less worry as to how you will pay your bills when your “real job” no longer is your source of funds!
Can you confidently spend the money you have saved and accumulated for retirement? That accumulated money is money that you should have socked away over the past 30 or 40 years and seen it grow just for this big change in your life.
If you haven’t done that hard part, your retirement isn’t going to very comfortable. If you’re younger, even 10 years younger, than you still have some time to prepare a sum of retirement monies that can be part of your income stream in retirement. But that means you must go at full steam ahead mode to have any chance. And it means you must get a job ASAP in order to have the time to build those funds. Retirement for you may be at age 70 or…never!
Emergencies in retirement
Next, when you actually are ready to retire, add emergency savings to your plan. You need to have saved up some liquid funds to prepare for emergencies by saving at least three months of living expenses, and have that money easily available. Emergencies do not stop just because you are no longer in the workforce.
Third, and the most overlooked aspect of retirement planning, is having a well thought out tax strategy. Having a sound tax strategy to guide you through the process of spending money from both taxable and tax-deferred accounts is very important because your money may be coming from taxable income streams even from your IRAs. In fact, your Social Security benefits can be a taxable category.
There is no one-size-fits-all plan for figuring out when is the right time to begin collecting your Social Security benefits. Some say go ahead and start taking it as early as age 62 when you first become eligible, and some say wait until you’ve reached the full retirement age of around 67 (depending on your birth date) or hold on until the max required age to begin, age 70.
It can pay to hold off, as early withdrawals are reduced by a certain percentage, but this should be weighed against other factors.
Here is an example. If your full retirement age is 66 and you begin claiming benefits at that age with a full monthly benefit of $2,000, you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, your benefit will be reduced to 75% of your full monthly benefit (i.e. you’ll get 25% less per month, and your check will be $1,500). Eventually, if you live long enough, you will have a break-even point and if you live longer than that (and averages are indicating you might), you would actually receive less money in your retirement than if you waited until the very last moment at age 70 to begin draw it.
A 401(k) strategy
Have a strategy for your 401(k) plan and determine the best time for you to access the money, based on your goals. You don’t have to actually draw from your retirement account now until age 72 (under the new law) and you shouldn’t draw unless you need that money to live on because it is a real “security blanket” that can continue to grow for you for years and years. That’s why you really do need alternate streams of income.
You need health insurance coverage on your own until Medicare kicks in for you at age 65. Price it out and find out and know your coverage areas. Many financial tools online offer ways that can help break this down for you. It is a necessity, not a luxury, in retirement.
Lifestyle and location
Consider where you’ll live, both short-and long-term. Have a plan for funding a move and understand the timing involved. Downsizing and relocation may be a requirement for you, so be prepared for it.
Your bucket list
Write down your personal goals for your retirement years. Explore your dreams, priorities, and values. Do you want to explore some volunteer roles? Rent an RV or a boat? Travel or sit by the pool and read? You need a plan and you need to keep yourself active, too.
My Own Unplanned Early Retirement
Although there was no pandemic in early 2012, I had my own unplanned early retirement after suffering a heart attack at the age of 62. It left me in poor health and I was simply unable to continue working full time. While I had saved for retirement most of my working life, it was still a difficult transition that I had not anticipated. I elected to begin my Social Security benefits early, and I had to find individual healthcare coverage as I was not yet eligible for Medicare. It’s a good thing that my wife and I are budget-minded as there were a couple lean years, but now I am also receiving a pension and an annuity payout so our budget has a lot more room in it. And since 2014, I’ve been writing this blog and keeping myself busy that way.
Even if you had a good plan in place before March of this year, you may have to revise it completely now. Unplanned early retirement isn’t something that many people are prepared for, under normal circumstances.
What will you do with your time? How will you begin to make the changes you need to consider? Can you find alternate streams of income now? Setting aside time to come up with this list is key to living.