Oct. 12, 2020 — Many Topretirements Members are still working, wondering if and when they might retire. Enter the pandemic, and many new calculations enter into the mix.
So many corporations and small businesses have been affected in serious ways by the coronavirus. Airlines, restaurants, and hotels have been particularly devastated by people not traveling and going out to eat. States and municipalities, hit by extra expenses and declining revenues, are looking for ways to cut their budgets. Organizations like these are wondering how they are going to survive. One of their most obvious options is to layoff workers or encourage others to take early retirement.
You might be one of those people approached with a retirement package. Or you might have decided that the pandemic has made it too difficult to keep working. For example, if you are having to teach via Zoom and don’t find it rewarding. Or, maybe you found working from home so liberating that you don’t ever want to go back to the office. Worse yet, you might have been laid off and facing an early retirement you weren’t expecting. Whatever your situation, now is a good time to re-evaluate your retirement premises.
The Wall Street Journal just published an interesting article on what to consider if you are offered a retirement buyout (see Further Reading below). Here are some of their considerations, along with other thoughts about retiring now instead of later.
–How close are you to retirement. The closer you are the smaller the decision, assuming the package is fair. So if you are ready to go, you might just decide to take it. If you are further away from your target date, it might not be such a great idea, depending on the deal.
-What do your finances look like. If you take the package or decide to retire now, do you have enough money saved to retire comfortably? Retiring early usually means that you stop contributing to your 401(k) and IRAs, and have to start taking money out. Do you have enough saved to cover your expenses and the lifestyle you want to have in retirement? Or can you take a different job, perhaps part-time, to pick up the slack.
-Tax consequences. Will a lump sum package push you into a higher bracket, and would you be better off declining for that reason?
–Health insurance. If you are years away from Medicare eligibility (usually age 65) and you won’t have a package that provides company insurance, you need to calculate how much extra you might have to pay for health insurance for those years. That could be a lot of money.
-Social Security. Many people nearing retirement have maxed out their 35 year contribution average. For them, working a few extra years might not move their monthly SS benefit. But if you were out of the workforce for more than a few years, or if you have many low contribution years, you might be better off staying on the job in order to claim a higher benefit. Also, the more years you have to wait before you can collect your maximum benefit (at your Full Retirement Age, or even better at age 70), the more important the decision.
-Get expert advice. If you are one of the lucky ones getting a retirement buyout, it is probably complicated. Your financial advisor or accountant might have some good advice for you, so it would be worth your while to have them look it over. That applies even if you are retiring without any buyout – knowing that you can pull the trigger and have enough to live comfortably is important.
-It’s not all about money. If you like working, our advice is to keep doing it. If you have things to do and work isn’t fun, and you can afford to, maybe this is a great time to retire. Think it through, and make the decision that makes you happy.
Comments? Has the pandemic made you think twice about your retirement strategy? Have you been offered a package, either now or in the past? What was/will be your decision and why? Your experiences will be very valuable to your fellow Members. Please comment below.
For further reading:
Should You Retire in a Pandemic (Wall St. Journal- paywall)