The outbreak of COVID-19 has made considerable changes in socio-economic landscapes worldwide. The retirement of federal as well as private employees is in an uproar due to the prevailing situation.
If someone has planned to be retired earlier than its tenure, he/she must be ready to bear the consequences given below. Moreover, those who have completed their mandate must face uncertainties due to meet in this pandemic.
According to Alicia Munnell, director for the center of retirement research at Boston College, “Everything is going to harm retirement security.” In short, there is not even a single situation that is in favor of those who are going to have their retirement during COVID-19. Now, let us look over what would hit the retirement benefits of federal and private employees.
What problems are to be faced by the employees retiring now?
At this time, taking retirement is not a prudent choice due to specific issues. Let’s discuss these issues that raise the question of the integrity of retirement during COVID-19.
Are you ready to face the delays?
In the wake of COVID-19, the federal government has issued directives for employees to leave their offices and be confined to their homes. In this situation, how would you get all your retirement procedures done?
Of course, at this time, there is no way of having facilitated documentation for your retirement. On the other hand, a report from the government executive also accepts that there will be delays in the paperwork of people who will retire during these chaotic circumstances. The report expresses its concerns in the following words:
“Those employees who had the unfortunate timing to retire during the furlough had to live with uncertainty about the status of their retirement claims.”
Similarly, the Office of Personnel Management also says that there could be delays in the processes required to achieve benefits associated with retirement. And the reason OPM office-related for this issue is that still a huge part of retirement comprises of paper-based work, and this paper-based work is not possible without the presence of employees at their offices.
This is the situation that federal and private employees will have to face. Individual employees have been put together because most of the private employees carry a 401(k) plan, and the 401(k) plan also requires documentation before having retirement benefits. These delays will equally affect the interest of employees who have served their terms and have now entered the retirement phase.
So, these are the difficulties that have to be faced by federal and private employees. Now let us talk about those employees who are planning to go for the option of early retirement.
Are you planning for early retirement?
For sure, you might have made this decision keeping in view your convenience, but in the aftermath of COVID-19, early retirement is nothing more than stupidity. So, if you are planning for early retirement, you must not forget about the uncertainties that you have to face after retirement.
Uncertainties for people planning for early retirement
Whether you have a 401(k) plan, TSP, or annuities, you must not escape the adverse effects on the economy inculcated by COVID-19. So, let us see one by one how this dilapidated economic condition proves you wrong in your early retirement decision.
1. 401(k) plan and COVID-19-
401(k) and Thrift Savings Plan, both of these have a lot of things in common; the only difference is that TSP is offered only to federal employees, while the private employees follow the 401(k) plan. Typically, a 401(k) plan is a surety for private employees after retirement, and the employer sponsors this surety for its employees.
On behalf of its employee, the employer invests money in some reasonable way from where handsome interest is possible. When retired, the employee gets that money in the form of security that avoids any financial problem in their retired life.
According to the conditions and circumstances, a vast number of employers have terminated the 401(k) plans of their employees, claiming that they have not enough investment to invest on behalf of their employees. Although the federal government encouraged employers to keep the 401(k) plan of their employees continuing, a considerable number of employers have taken their step back.
If you are planning to take early retirement, please make sure you have something in your hand. And if you do it without thinking about this thing, you may leave a lot of money on the table that was yours just because you could not wait for the right time.
Therefore, this is how COVID-19 has hit the 401(k) plan, and it would have never been a reasonable choice to avoid the ground realities.
2. Thrift Savings Plan and COVID-19
Thrift Savings Plan, or TSP, is a program that has expressly been made for federal employees, from where they could have a summed-up amount on tax-deferred payments.
In the tenure of service, a federal employee invests in TSP, and every month puts a particular part of its income in its TSP account. Later on, consulting with a professional advisor, this saved money is invested in funds like G fund or another fund.
According to the interest rate of the market, these funds allow you to have the benefit that you earn in the form of interest, and this benefit keeps on accumulating in your TSP account, which cannot be used to withdraw money before you retire.
In the wake of COVID-19, the federal government removed all restrictions from using money from TSP accounts. A lot of federal employees utilized this so-called opportunity and started consuming the money that they had saved for rainy days.
Being a federal employee, if someone goes for the option early of retirement, he/she might not have enough money to secure their life after retirement.
3. Annuities and COVID-19
Whether you’re an employee or have your own business, you would never like any situation when you have to worry about money to fulfill your basic needs. In such cases, an annuity appears to be the best option to choose from.
The annuitant enters a deal with the annuity company, and the annuitant gets an account where the annuitant deposits money every month. After putting that money into the account, that money belongs to the company, and the company invests that money.
This is how you keep on depositing money, and the company lends it to someone at a reasonable interest rate, and the company keeps on saving that accumulated money. Once the annuity is mature, or the annuity reaches the annuitization phase, the annuitant could withdraw that money from its account.
So, in the wake of COVID-19, many employees who have annuities as a saving plan will not be able to pay their due amount, and their plan will deteriorate.
Although they have a contingency plan after their early retirement to pay the dues of their annuities, they must think that their contingency plan would work in these difficult circumstances.
However, you are rich enough to pay the due amount of your annuity plan; you should still think again before going with the option of retirement. Therefore, this is how employees having annuities as their saving plan must not leave their job in this situation.
COVID-19 has changed the behavior of the global economy, and this change adversely affected every aspect of life. Among all these crises, one of the most significant blows is faced by federal and private employees who served their tenures and were planning for early retirement.
Those who are advertently committing the mistake of retiring early might have to face severe economic uncertainties in their retired lives, as neither 401(k) plan nor TSPs are stable.