In 2020, businesses and individuals alike have been forced into changing their plans as a result of the COVID-19 global pandemic. For older workers, those with one eye on retirement might now consider the prospect with serious thought. While some have had hours reduced, others have been furloughed or lost their job completely. For some, it’s a case of not wanting to take risks by returning to an office during the pandemic.
Whatever your position, you might wonder whether you’re ready to retire during what is now uncertainty. To help, we’ve compiled three fantastic considerations.
Regardless of the pandemic, it’s always good to understand your Social Security claiming options. With Social Security, in particular, lots of households make the decision to start claiming without really understanding the implications of this decision. Unless you have poor health, for example, it’s normally best to wait as long as possible after 62 because this will increase the monthly benefits you receive when you finally do start claiming.
Depending on your full retirement age, claiming at 62 can reduce monthly benefits by 30%, in some cases. If you can wait until you’re 70 years of age, you could gain up to 8% per year in monthly benefits.
Furthermore, think about your plans to work because ‘retiring’ these days doesn’t automatically mean ending your work life. If you claim before your FRA (full retirement age), earning over an annual earnings limit will mean returning a portion of your benefits. The limits are as follows:
• Up to FRA – $18,240
• At FRA – $48,600
Also, don’t forget to consider your partner’s earnings when claiming. If you earn less than your spouse, it’s possible to add a partial spousal benefit when your partner starts claiming (after claiming early yourself). Monthly benefits should increase when the spousal benefit is higher than an individual benefit. If you’re to do this, remember that filing before FRA will reduce both partners’ benefits.
Sources of Income
Whatever you do, please don’t retire before you’ve had a chance to create an income plan. While the 4% Rule is a traditional option, it’s under threat from new market conditions and extending life expectancy. If you haven’t heard of this rule, it essentially says that a retirement portfolio will last 30 years by withdrawing 4% in the first year and then only adjusting for inflation in the consequent years. Many studies and surveys are now suggesting more conservative plans for retirees.
This is somewhat of a risk for those who rely on the stock market for significant chunks of retirement income. We understand the worry of outliving funds, but there is a middle ground with fixed index annuities and other solutions. With some fixed index annuities, investors avoid losses by participating in the gains, and some even avoid fees.
Before you sign anything, speak to a financial advisor because not all products are the same. These fixed index annuities are different from products with attached benefits and variable annuities.
As the third consideration, it’s often a nasty surprise when an employer has covered somebody for many years, and suddenly, you need to pay healthcare premiums. When you see marketplace savings, this considers the income for the whole house for the year in question (including IRA or 401(k) withdrawals and benefit payments from Social Security).
Some retirees choose short-term medical insurance because they can’t afford the deductibles and premiums on the marketplace. Although coverage and cost vary, it’s sometimes the best way to get coverage while waiting for Medicare.
Retiring During a Pandemic
Should you retire during the COVID-19 pandemic? Unfortunately, even those with a crystal ball would struggle to see what’s coming around the corner; the last 12 months are proof of this. The economy has certainly taken a knock this year, but there’s nothing wrong with gathering information and assessing your own position during this crisis. This, coupled with strong advice, will allow you to make a plan that suits YOU.