The Coronavirus Crisis Could Force You into Early Retirement—Here’s What You Can Do to Prepare Your Finances
With business disruptions and closures affecting the whole world, the coronavirus pandemic has proven to have caused financial stress in most American households. This crisis especially puts older Americans who are nearing their retirement in limbo.
Since mid-March, there have been more than 33 million Americans who have filed for unemployment. The future of employment is still bleak as millions more are expected to file in the coming weeks.
Workers aged 50 and up comprise a third of the US labor force. About 5 million employees in this demographic work in retail, an industry that is among the hardest hit amid lockdown measures, according to the AARP. Meanwhile, about a million of them work in food services.
There is still an uncertainty hanging in the air as to how many jobs will return and when an economic rebound will happen. Unfortunately, some older Americans may have to retire earlier than anticipated. But what should you do if you’ll be forced into early retirement?
Assess Employment Opportunities
If you think that your savings are still not enough for a comfortable retirement, consider looking for work opportunities even if it’s just part-time.
It’s all about filling the gap, according to Kestra Financial’s head of retirement plans, Taylor Hammons. You have to find ways to still earn at least part of your expected income during the time between your unemployment and your expected age of retirement.
Older Americans can still make use of their unique skillsets to take on jobs in the gig economy. Offering your freelance services on websites like TaskRabbit can be a great option.
Evaluate Financial Situation
Make an inventory of your financial situation as a whole. Ubiquity Retirement + Savings founder and CEO Chad Parks advises looking at all your sources of income and assets. You may not have a terrible situation after all.
Look into various accounts like your 401(k), 403(b), IRA, and pension plans from past or current employers. Parks says that 401(k) accounts were not that popular at the time that this demographic entered the labor force. They may have an IRA but forgot about it. Even small amounts count in this situation.
Make Necessary Adjustments to Your Plans
If you’ve been aggressive in your investments in retirement accounts, then you might want to consider adjusting your strategy. The last thing you want to happen in an uncertain situation like this is to be vulnerable to market volatility. Workers nearing their retirement age don’t want to be risky with money with a possibility of unemployment or retirement looming.
At this stage, Hammons recommends transitioning your mindset from accumulation to harvest. Also, take into account the downsides of withdrawing your retirement account balances when the market is down.
Consider Taking Social Security Early
Those who have worked for a sufficient number of years can turn to social security for retirement funds.
Both Parks and Hammons noted that it’s important to know how claiming benefits at a certain age can affect your overall retirement strategies. Claiming social security before the full retirement age will reduce the benefits you can get.
For those with 66 as their full retirement age, claiming at the age of 63 will mean that their benefits will be reduced by 25%. If they claim at 65, it will be reduced by 6.7%. Delaying the time when you collect can increase your benefits by as much as 32%.
According to Hammons, take your benefits early if it’s part of your comprehensive overall retirement strategy and not because of a knee-jerk reaction.
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