Has the pandemic caused you baby boomers to put retirement plans on hold? Have you lost your job forcing an early retirement you aren’t prepared for? Because of your age, are you unable to go to work because of health risks involved? Have you tapped into your retirement accounts to pay bills?
If so, you’re not alone.
The pandemic has hit older workers hard. The unemployment rate among Americans age 55 and up nearly tripled in the last year, according to the U.S. Bureau of Labor Statistics.
The pandemic already has fueled a surge in early retirements, according to a report published this year by three economists. “It’s still early, but experts believe the pandemic will upend the timing of retirement plans of many older workers,” Mark Miller writes in the New York Times article, “A Pandemic Problem for Older Workers: Will They Have to Retire Sooner?” “In some cases, their decisions will be voluntary; in other cases, retirement may be forced upon them by job elimination or unavoidable health risk.”
Not surprisingly, 58% of Americans are more concerned about retirement today than a year ago, according to the September 2020 SimplyWise Retirement Confidence Index. The index reports that 15% of older Americans who lost their jobs due to COVID-19 are now planning to retire earlier than anticipated. That could mean trouble. Many boomers haven’t saved enough for retirement, and the pandemic is only making things worse. More than half of people in their 50s are not confident they’ll be able to maintain their same quality of life in retirement – and no wonder since 43% of them say they couldn’t last more than a month off their savings.
Unfortunately, some difficult decisions have to be made. While some older workers have been able to work remotely during the pandemic, that hasn’t been the case for all boomers. As businesses are opening up, many have to make the choice between risking becoming seriously ill with the coronavirus – and possibly bringing it home to a spouse with underlying health conditions – or forfeiting their earnings.
For older workers who were hoping to work long enough to collect full Social Security benefits (delaying benefits until 70 can mean a monthly payout more than 75 percent higher than taking benefits at age 62) the decision to stay home could have lifetime financial consequences.
Okay, that’s the bad news. So, what can you do? Here are a few tips based on experts’ advice:
- If you’ve lost your job forcing an early retirement or are unable to work because of health risks, explore all your options carefully before changing your retirement plans. Many financial experts say that making any significant changes to retirement plans in a time of crisis must be considered carefully. Look at your budget carefully. Stay safe and take advantage of financial benefits from social distancing and staying at home. Resist the urge to online shop. Who needs new fancy shoes right now? Dye your own hair – that’s what I’ve been doing the past several months! Traveling is risky now due to the pandemic, so stash the money you would have spent on recreational activities in a savings account. Consider downsizing or moving to a state with a lower cost of living. Do everything possible so you can stick to your retirement plans.
- What if you just can’t make ends meet? A provision in the new COVID-19 Relief bill allows Americans to take penalty-free distributions from IRAs and qualified retirement plans up to $100,000. The standard 10% penalty for withdrawals under age 59.5 is waived. The maximum loan you can take from a workplace retirement plan is doubling, from $50,00 to $100,000, during the COVID-19 pandemic. But just because it’s easier to tap retirement accounts, should you? Experts say there still are precautions to consider. Most financial advisers caution against such early withdrawals, if possible. Instead, you may want to talk to lenders or your landlord to see what bills you can defer. Many financial institutions are willing to work with people right now.
- If you must retire early, consider rebalancing your portfolio to reduce your exposure to risk. Experts recommend that those nearing retirement or already retired have the majority of their savings in liquid funds such as CDs, savings accounts, and short-term, high-quality bonds while setting aside a smaller portion of savings to be invested in the stock market over a lifetime. One rule of thumb for your retirement money you might consider is to keep your age in safe investments. As Suze Orman advices: “If you are 60, you might have as much as 60% in CDs or short-term Treasuries, and the rest can stick with stocks.” You may choose to be even more conservative if you must retire early. Experts generally agree that you shouldn’t invest anything you’ll need within the next five years. That way you’ll avoid pulling out all of your money during a market downturn which historically has always come back up again. Also, be wary of higher-risk investments and complicated annuity insurance contracts that may not appear risky at first glance.
- What if you’re one of those baby boomers who needs to consider working longer or supplementing social security with part-time employment during retirement? Is that all bad? Perhaps you had grand visions of what retirement would be like. Being forced to stay at home may have given you some clarity. All those books you were going to read, recipes you were going to try, and hobbies you were going to explore may not have been so appealing after months of staying home. Maybe working longer is not as bad as you thought or perhaps you realize that a gradual transition into retirement, working part-time, isn’t such a bad idea.
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