In the wake of COVID 19, the health, as well as the economic emergency, has been implemented in the USA. According to economists, the recession that will come due to Coronavirus will be even more severe than the economic downturn of 2008-2009. It’s not wrong to say that this will be the biggest upset for the American economy after the Wall Street Crash event in 1929.
So, in these severe economic conditions, every step should be taken with immense care. Still, if someone is thinking of taking early retirement to enjoy your remaining life with family members, believe us, it is not the right time to make that decision. Otherwise, you might have to face those losses which were even not yours,’ but you intentionally added them in your account.
Here, we’re going to let you know about the five factors that will convince you to reconsider your decision to go with the option of early retirement. Moreover, the experience we gained from the economic recession of 2008-2009 will be fully utilized to lead you to the right path that could bring you more benefits.
#1. Trillions of dollars of retirement might disappear in this crisis:
You might have heard about the massive $2 trillion bill approved by the Senate in the wake of COVID 19. You’d be surprised to know that $2 trillion was the amount that only got erased from the retirement savings of the people in 2008-2009. The US retirement accounts, along with the employer-sponsored contribution plans like 401(k) plans and individual’s retirement plans, went down 24%, erasing $2 trillion from the retirement savings.
Moreover, according to the Russel 3000 index, the entire USA stock market faced the blow of 39% shrinkage. But, this figure is even worse and scary than its predecessor, as according to the Russel 3000 Index, again, 25% of the retirement savings that are worth $3.8 trillion have been wiped out by the adverse effects of COVID 19.
Here we have an estimated graph of the value of the retirement accounts from 2007 to 2020;
#2. The contribution of employees in 401(k) plan may shrink:
In the wake of COVID 19, more than 200 countries are facing a curfew-like situation. So, the position of the USA is not much different as it has come under the spotlight as most adversely and severely affected countries due to the COVID 19. So, the government has issued directives for lockdown, and companies urged their employees to work from home.
But there is a massive number of people whose work cannot be done from home. We can take the example of marketing associated employees whose work includes interaction with the customers, and now due to lockdown, they have been let go from their jobs. Since the inception of this deadly Coronavirus, more than ten million workers have filed unemployment claims.
So, in these hard economic circumstances, how would employees manage to contribute in their 401(k) plans. For sure, it will be tough for them, as some of them might have lost their jobs. As four employees out of every 10 are unable to contribute in their 401(K) plan, it wouldn’t be wise to take early retirement as it will inflict a negative impact on your retirement savings.
On the other hand, this is the employers’ contribution plan, and someone will not have the job; how would it be possible for him/her to continue his/her contribution.
#3. Employers might reduce their contributions for the 401(K) plan of their employees:
The business has been the top target of COVID 19, as most industries have stopped working due to this pandemic. As employers are worried about their businesses, they might inflict a cut in their contribution that they make for their employees in their 401(K) plan.
Similarly, considering the situation in 2008-2009, 200 employers suspended their matches for their employees’ 401(K) plan. So, it could be estimated that the consequences this time will be even worse.
Albeit, the Senate’s $2 trillion’s aid would help employees and employers, but still, the effect can be minimized, not eliminated.
#4. Early withdrawals from workers’ part:
The economic conditions are the worst. The stock market is on the verge of a crash, and oil prices are consistently falling. In all these circumstances, employees have no other option but to fill their unexpected expenses, rather than using the withdrawal option. They have no other resources to utilize, whether they have to pay their utility bills or medical bills.
Withdrawals from the plan also spiked during the last economic recession, and the same is happening now. Although the Federal Government has made it easier for the employees by mainstreaming the Economic Security Act that allows them to withdraw from their savings, the plan will miss its real essence and will not be that effective.
#5. Social Security claims might cause problems:
Social security allows for crucial help for unemployed workers whose age is 62 years or more. The claims for social security aid spiked during the recession of 2008-2009, and now this time, this number will be even more significant.
However, those who have taken early retirement, social security would apply a permanent cut in their monthly payments.
These are some of the common reasons why you must shun the idea of early retirement. Otherwise, you might not get your retirement expectations fulfilled.
In normal conditions, employees go with the option of early retirement, which does not affect their savings the most. But, if we compare the normal conditions with conditions after COVID 19, it will not be a wise choice to take the option of early retirement.
Moreover, in the aftermath of the previous economic recession of 2008-2009, the same situations got ground, and some employees committed some mistakes. So, you might learn from the past and keep yourself safe.
