Wealth Management

Is Early Retirement for You?

How the Pandemic is Reshaping This Decision for Americans

By Jean M. Deliso, CFP

 

After a year of Zoom calls, a deadly virus, inflated real-estate values, and a crazy stock-market surge, many Americans, mostly Baby Boomers, who can afford to retire are taking the plunge.

This pandemic caused mayhem for everyone. It drove the healthcare industry almost to collapse, families lost loved ones prematurely, parents became teachers, and many businesses did not survive. But amid all the gloom and doom was a silver lining for many. The government became efficient with quick economic actions, families re-evaluated the benefits of family time, pollution got a brief time out, and businesses became more electronically efficient, to name a few.

Through all the challenges, people took time to re-evaluate their priorities in life. Many are choosing to rethink their future and what is important to them going forward. In fact, about 2.7 million Americans 55 or older are contemplating retirement years earlier than they had imagined because of the pandemic, according to a Bloomberg report. Between increasing retirement-account values, those lucky enough to have pensions, an increase in home values, and government funds that have been put back into the economy, retirement is happening sooner than expected for many.

Jean M. Deliso

Jean M. Deliso

“Whatever your circumstance, achieving your retirement objectives will not happen automatically. The earlier you start planning, the better off your chances are of enjoying a happy, fulfilling, and long retirement.”

As a certified financial advisor, I have met with many individuals contemplating retirement who have decided “enough is enough — life is too short.” Some reasons include a scare with cancer five years ago that made my client reconsider his commitment to climbing the corporate ladder, or “I’m just not happy doing what I’ve been doing for years; it’s no longer fun.” Potential retirees have either saved enough or have decided to spend less in their retirement years.

In contrast, many Americans who were pushed out of their jobs by the economic slide of the pandemic had to take an early retirement against their wishes. This has resulted in them receiving lower Social Security benefits and pension amounts. Twenty-two percent say the pandemic has forced them to spend their emergency savings, 10% have reduced their retirement-plan contributions, and 12% have withdrawn money from their retirement accounts, according to a survey by the National Institute for Retirement Security.

Unfortunately, both scenarios have resulted in increased stress to Americans in the workforce regarding retirement. None of us know our date of death, which makes retirement planning tricky for most.

Too many Americans rely solely on Social Security. This pandemic proved that those benefits do work; checks were consistently received by Americans as the pandemic raged around them. This experience shows that the Social Security system works. Also, checks were sent to those who couldn’t find jobs.

Whatever your circumstance, achieving your retirement objectives will not happen automatically. The earlier you start planning, the better off your chances are of enjoying a happy, fulfilling, and long retirement. Here are a few steps to consider for a successful retirement:

1. Determine your cost of retirement. This includes your monthly living expenses, your age to retire, and your life expectancy.

2. Apply your income sources. Review what you will have available to you, such as Social Security, pensions, immediate annuity payments.

3. Withdraw from your portfolio assets. Take withdrawals against your portfolio assets to make up any difference needed. These assets may include brokerage accounts, money-market accounts, 401(k)s, 403(b)s, IRAs, and annuities. (Withdrawals may be subject to regular income tax and, if made prior to age 59½, may be subject to a 10% IRS penalty. In addition, surrender charges may apply.)

4. If necessary, consider changes. If, after steps 1-3, you are falling short on your plan, consider changes such as saving more, redefining your retirement age, or considering part-time employment during retirement.

5. Consider a professional. This can help you clarify your goals and objectives in retirement.

 

Jean M Deliso, CFP is a financial adviser offering investment-advisory services through Eagle Strategies LLC, a registered investment adviser.

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