Millions of older working Americans, facing the challenges created by COVID-19, are rethinking their retirement plans. But before taking a life-altering step, such as retiring or changing careers, it’s best first to consider the ramifications of that critical move.
In a 2020 nationwide poll of teachers conducted by the National Education Association (NEA), 28 percent of the respondents indicated they were more likely to retire early — or leave teaching altogether — in the wake of the pandemic. While those numbers include some younger teachers, most of them are educators with more than twenty years of teaching experience. These results do not bode well for a profession that was short of qualified mentors even before the virus.
Of course, teaching is only one of the jobs on which the pandemic has had a devastating impact. Across the country, millions of workers have been experiencing layoffs, business closures, health concerns and changes in work requirements or other circumstances, prompting them to leave (or seriously consider leaving) the full-time workforce.
Early retirement can affect the quality of one’s lifestyle for many years and a variety of reasons. If you are among those thinking of making the transition, especially an older worker at or near retirement age, here are some of the things you should consider before making a final decision:
According to U.S. Census Bureau data, 63 is the average retirement age for Americans. You may start receiving Social Security retirement benefits as early as 62, but your monthly income will be reduced significantly, as will any spousal benefit.
For example, those born in the years 1943 through 1954 will reach full retirement age when they turn 66. However, if they decide to retire at 62, their benefits will be reduced by 25% and their spousal benefits by 30%. That means that a $1,000-per-month full-retirement check would turn into $750, and a spousal benefit of $500 would become $350.
Not only that, but they will not be eligible for Medicare health insurance until they reach the age of 65, resulting in a heftier chunk of their retirement budget going toward private health insurance premiums for the first three years.
Some financial pundits attempt to give you a grand total that you will need to have accumulated to retire comfortably. As with most financial planning, there are too many individual factors making this difficult. The usual advice is to endeavor to replace 70% to 90% of your pre-retirement income.
Unfortunately, these same experts predict that you will be able to live on 80% of your income from full-time work. Unless you reduce spending by paying off your mortgage, for instance, your overall spending could increase because of the traveling, entertainment and hobbies you will be pursuing to fill all those available hours you will now have.
Create your retirement budget based on your pre-retirement budget. You can then add up your social security benefits, retirement accounts and personal savings to determine where you stand financially.
If you are low on accumulated savings, you might need to lower your cost of living. Those willing to reduce retirement expenses have a better chance of a successful early retirement. Here are a few strategies that could help:
Retiring typically results in a significant cut in pay since Social Security benefits replace only a portion of your pre-retirement income. How will you replace it? If you were fortunate enough to work for a company that offered a pension plan, that would take up some of the lost income. An IRA, 401(k), and regular savings and investments will also help.
Some people take a portion of their retirement portfolio and purchase a single premium immediate annuity, which is a contract between you and an insurance company that provides monthly income that you can’t outlive. It’s an excellent way to supplement Social Security and perhaps make early retirement possible.
You can also think about working part-time in retirement. Much of the country is working remotely, and that’s likely to continue even after COVID-19 has subsided.
Long-term care (LTC) insurance is a critical component in a comprehensive retirement plan. It entails paying a monthly premium in return for financial assistance if you should need help with day-to-day activities such as bathing, dressing and eating meals. A daily benefit of $160 for nursing home coverage is also included. Most policies have a three-month waiting period before coverage begins. And you typically receive four years’ worth of coverage.
The insurance can be pricey, averaging $2,700 per year for individuals and $3,700 per couple, so you need to account for it in your retirement budget. The cost of your long-term care policy will be based on:
Anyone who is seriously thinking about jumping on the retirement bandwagon should first consider what retirement life will be like for them. Those who spend years planning for retirement usually have plenty of activities woven into their days to ensure that life keeps its meaning for them.
The issue with turning to retirement based on the coronavirus is the minimum amount of thought that might be put into a life-changing decision. The euphoric feeling of being freed from a job wears off quickly. You don’t want to wake up on that second week of retirement thinking, “What now?” You will need to manage the feelings of disconnection, lack of social interaction and the loss of purpose that many unprepared retirees face.
Alliance America is an insurance and financial services company. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.