October 01, 2020
October 01, 2020
Your retirement date isn’t always a choice.
If that wasn’t already obvious enough to older workers, the coronavirus has cleared things up.
As the pandemic drags on, more and more people are being nudged toward the finish line a little faster than they planned — either because their jobs have gone away or because they don’t want to put their health at risk by showing up at their workplace every day.
Some had planned on retiring soon anyway, and this was going to be their last working year. Some were laid off and simply are not up for the process of looking for a new job. Others are self-employed and do not have the energy to start all over with a new business.
And what they all really want to know is: Am I prepared to retire during uncertain times?
The answer is maybe. But maybe not.
Hopefully, you have a solid plan in place and you can find a way to transition to that plan a little early without running into too much trouble. In my new book available on Amazon, “Wall Street and Your Retirement: What the Bulls and Bears Don’t Want You to Know,” I address the problems and potential solutions of retiring in uncertain times.
If you aren’t sure where you stand, however, here are a few things to consider:
Retiring without an income plan is like flying an airplane without knowing if you have enough fuel to get where you’re going. If your plan is to follow the old “4% rule,” you might want to rethink it. That guideline, which has been around since the mid-’90s, says that if you withdraw 4% of your nest egg in your first year of retirement, then adjust annually for inflation, a moderate 60/40 stock-bond portfolio mix should last for 30 years.
But the 4% rule has been criticized for years as too aggressive for most modern-day retirees — and current market volatility isn’t changing any minds. According to noted retirement expert Wade Pfau, a safer post-pandemic rate would be closer to 2.4%.
Research and experience have shown that depending on the stock market to provide all or a large portion of the income you’ll need in retirement can be a scary prospect. But there are solutions, including adding a fixed index annuity to your portfolio to provide reliable income that you won’t outlive.
There are fixed index annuities available now that allow investors to participate in a portion of the gains of the market with none of the losses on the downside, and there are products with no annual fees. (Be cautious when checking out contracts. This is not the same as a variable annuity or a fixed index annuity with an attached benefit, such as an income rider.)
Knowing all the Social Security claiming strategies available is important for every individual, no matter when they retire. But if you’re suddenly retiring earlier than planned, it’s critical to keep a few things in mind.
If you’ve had health insurance coverage through an employer for many years, the premiums offered on the Health Insurance Marketplace (Obamacare) may give you sticker shock. Marketplace savings are based on your expected household income for the year you want coverage. That means counting the income from everyone in the household, and it includes Social Security payments and withdrawals from a traditional IRA or 401(k).
If you can’t get what you want or need from the marketplace with a premium and deductible you can afford, another option might be to check out short-term medical insurance. These policies, which vary in cost and coverage options, can offer a budget-friendly way to fill the gap before you reach Medicare eligibility.
Unfortunately, it’s impossible to predict or control what’s coming next for our economy — whether it’s more pain from this pandemic or something else that could affect the dreams you have for your retirement. What you can do, though, is gather up as much knowledge and good advice as possible. And, if you have not already, formulate a plan that’s built for both good times and bad.
Are you looking to start saving for a car, house, or rainy day? Check out our savings accounts that can help you get there.