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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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:
1. Know what your sources of income will be in retirement, and have a good idea of how long your money will last.
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.)
2. Know your Social Security claiming options and help optimize this significant income source.
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.
- The longer you delay filing, the more money you’ll get each month. You can file for benefits as early as age 62, but your benefits could be permanently reduced by up to 30%, depending on your full retirement age (FRA), which is based on your birth year. If you delay your benefits beyond your FRA, you’ll receive a delayed retirement credit of 8% per year (or two-thirds of 1% each month) up to age 70.
- If you decide to keep working after claiming, you may have to return some of your benefits. The Social Security Administration sets annual earnings limits for those who claim benefits before they reach their FRA. For 2020, the earnings threshold is $18,240 during the years leading up to your FRA, and $48,600 for the year you reach your FRA. If your earnings go over those limits, a portion of your benefits could be withheld.
- A bump in Social Security benefits might be in your future (thanks to your higher-earning spouse). If you’re the lower-earning spouse, you may choose to file for a reduced benefit at 62, then file to add on a partial spousal benefit later on, when your higher-earning spouse claims his or her benefits. If your spousal benefit is more than your own benefit, you should see an increase in your monthly check. Just keep in mind that both your own and your spousal benefits will be reduced because you filed before your FRA.
3. Know what your health care options and costs will be in the years before you qualify for Medicare.
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.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
This article was first published in 2020 during the COVID pandemic. Principles outlined in this article remain generally true for those nearing retirement during economic uncertainty and unforeseen economic events. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser.. Safe Money Financial Solutions LLC is our name and it does not promise or guarantee investment results or preservation of principal. Insurance products are offered through the insurance business Safe Money Financial Solutions, LLC. Retirement Planning & Investment Solutions, LLC. is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Safe Money Financial Solutions, LLC. are not subject to Investment Advisor requirements. The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. 02775021 - 01/25
Related Content
- 6 Ways the Pandemic Has Been a Dress Rehearsal for Retirement – and How You Can Take Advantage
- For a Happy Retirement, Try ‘Retirement Dating’ First
- 5 Retirement Lessons from the Return of Sports
-
How Prepaid Verizon Phone Service Works and When It's a Smart ChoiceExplore the differences between Verizon Prepaid and Verizon Postpaid plans—costs, perks, flexibility, and when going prepaid makes sense.
-
Try This One-Minute Test to Uncover Hidden Health RisksFinding out this little-known fact about your body could reveal your risk of heart disease and more. It's a simple, free check for healthy aging.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
-
Should Your Brokerage Firm Be Your Bookie? A Financial Professional Weighs InSome brokerage firms are promoting 'event contracts,' which are essentially yes-or-no wagers, blurring the lines between investing and gambling.
-
Supermarkets Have Become a Pickpockets' Paradise: How to Avoid Falling VictimSome stores regularly rearrange inventory with the aim of increasing purchases, and they're creating opportunities for thieves to steal from customers.
-
I'm a Wealth Adviser: These Are the Pros and Cons of Alternative Investments in Workplace Retirement AccountsWhile alternatives offer diversification and higher potential returns, including them in your workplace retirement plan would require careful consideration.
