Facing Early Retirement during the Covid-19 Pandemic

Almost seven million people (and counting) have claimed unemployment in the wake of the coronavirus over the past week. As we’ve already discussed, there is help available in the form of counseling resources, loans, and grants for those who might need it. However, some of you might be facing early retirement due to coronavirus and will be looking for the next steps.

Research and Patience

The first thing to note is not to make quick decisions. It is important to consider all of your options and talk things through with your financial advisor before confirming any choices. It might be useful to go back over your employment contracts if applicable and perform some thorough research to get familiar with your rights. You should understand what types of retirement benefits are in place with your employer before committing to early retirement.

401(k) vs 403(b) Retirement Plans

Another important aspect of retirement is your specific plan type. The 401(k) and 403(b) plans are distinctive in their own ways and can offer different benefits and options when you leave the workforce. While both offer tax-deferred retirement plans, 401(k) plans are often made up of various investment options we are familiar with. However, in 403(b) plans, the risk is transferred to insurance companies and this is why 403(b) plans often feature annuities.

Depending on your type of retirement plan, withdrawals may not be as simple as pulling the money when you need it or rolling it over to an IRA if you chose to. Many companies want you to keep your money with them for as long as possible and may ask you to annuitize. Annuitizing means that your investment is converted to a series of periodic income payments offered at a later date. The value of annuitized income is not only calculated by financial factors such as amount saved and interest rate but also life expectancy and other factors. Therefore, this choice can be complicated. You need to know the pros and cons of all of your withdrawal options.

Furthermore, those retiring before the age of 55 may experience penalties (above income tax) on withdrawals, and those retiring after the age of 55 could be subject to taxes on lump sum withdrawals on a 403(b) plan depending on your company’s plan.

Health Insurance in Retirement

Early retirees will need to consider health insurance coverage options because Medicare eligibility does not begin until the age of 65.  If you retire before the age of 65, you will need to budget between $500 and $1000 per month for health insurance. Within 60 days of retirement, a retiree may choose to sign up to the Affordable Care Act. There are lots of options for health coverage in early retirement and it is worthwhile to explore all of these.

Social Security Benefits in Retirement

Whether to begin receiving social security benefits or hold off is also a consideration to be made. Retiring between 62 and your full retirement age means that your benefit amount is lower than it would otherwise be (and permanently). However, delaying your retirement benefits until full retirement age could entitle you to a larger monthly benefit. Finally, there is the availability to increase your monthly amount even more by delaying from your full retirement age to age 70.

Overall, facing early retirement can be a daunting time, but there are many planning options to ease the transition from working to retired life. Discussing your options with a financial advisor might allow you to put things into perspective and maximize the benefits for your situation. Schedule a chat today.