Is early retirement the answer? Those over 55 face a multitude of employment issues
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It’s safe to say that 2020 is something of a transformative year. With a pandemic raging and no end in sight, many Americans are worried about the future. What was once stable and reliable has been thrown into perpetual turmoil.
Although COVID-19 affects people of all walks of life, one segment facing significant challenges is pre-retirees (individuals over 55). Since the pandemic has become such an economic burden, many older workers are trying to figure out what to do next.
Unfortunately, there are multiple ways that pre-retirees are being hit hard by the pandemic. In many cases, individuals are experiencing numerous problems at once, which can create an even more undue burden.
Let’s examine a few of those challenges.
Assessing health risks
Since the virus began, it was clear that it affected those over 65 most. According to the CDC, the vast majority of COVID-19 deaths are among older Americans, particularly those within retirement age. Even workers between 55 and 65 are at an elevated risk, especially if they have underlying health conditions, such as obesity, diabetes or high blood pressure.
The primary concern for many pre-retirees is whether it’s even safe to go back to work. While some workers can telecommute from home, not every position is well-suited for an online platform.
Even as states and cities reopen, older workers are weighing the risks. Is it worth it to stay employed with the potential risk of COVID-19?
An unstable economy
When the pandemic struck, unemployment rates skyrocketed to their highest point since the Great Depression. Over the last few months, those numbers have improved but the economy is still far worse off than in February.
For older workers, the statistics are even bleaker. Since March, nearly 3 million workers age 55 and over have left their jobs and the current unemployment rate for this segment is more than double what it was before the pandemic (11.8 percent vs. 2.6 percent.)
With such a high rate, competition is only going to be tougher. Also, due to the heightened health risks, some employers may not want to hire older workers. This puts pre-retirees in a bind. On the one hand, working for another 10 to 15 years means you can save more for retirement and earn more social security benefits. On the other hand, is it worth moving to a brand-new job and potentially one where the salary isn’t as high?
Early retirement: pros and cons
One of the obvious solutions for older workers is to retire early. Rather than try to find a new job or career, it might be easier to drop out of the workforce altogether. However, some potential issues can crop up late, including:
▪ Social Security: The amount of your SSI benefits depends on how long you pay into the program. As a rule, you can earn about 8% more annually after your full retirement age (FRA) until you reach 70. So by waiting until then, you can increase your monthly income.
Conversely, the earliest you can retire is 62, so if you haven’t reached that yet you may be in an even worse financial bind.
IRAs and 401(k)s
Since you may be able to contribute more into your 401(k) plan from your salary than into an IRA, being able to maximize your 401(K) contributions for more years can yield substantial dividends during retirement. Cutting these additions off (and starting withdrawals) can limit your earnings significantly. Not only would these accounts not increase but you may not earn as much either.
Downsizing
One potential upside of early retirement is that you can move forward with any downsizing plans. For example, if you want to sell your home and move into a smaller condo, it’s easy to cut down on monthly expenses. Also, since you are no longer tied to a specific job, you could potentially move to an area with a lower cost of living.
Part-time employment
Just because you decide to retire early doesn’t mean you can’t work again. At the start of the pandemic, specific jobs and industries were deemed “essential.” Most of these positions were related to the healthcare field, but anyone working within the supply chain (i.e., truck drivers, grocery clerks, meatpackers) is also essential.
Although you may have to retire from your current position, you may be able to find some side income to supplement your retirement accounts. In a perfect scenario, you would still be able to contribute more to a retirement plan than you withdraw from it.
Bottom line: pre-retirees face a difficult choice
Unfortunately, there doesn’t seem to be a silver lining at the moment. Those who are already close enough to retirement will likely opt to leave the workforce early, but anyone between 50 and 60 will have a rough road ahead.
Overall, the path forward requires you to mitigate risk, assess benefits and consider other factors like your health and standards of living. From there, you can determine the right choice for your needs.
Sources:
www.marketwatch.com/story/covid-19-will-force-older-workers-into-early-retirement-2020-06-17
Clint Haynes is a CERTIFIED FINANCIAL PLANNER professional and member of the Financial Planning Association of Greater Kansas City. He is a financial advisor in Kansas City, and the founder and owner of NextGen Wealth.