Everyone has an ideal retirement timeline. This schedule might revolve around when it’s typical for professionals in your unique industry to retire, or when you personally feel as though you’ll be ready to make the transition to full-time retirement. However, in life and finances, sometimes things don’t go exactly as planned.
Many pre-retirees are finding that in the age of coronavirus, they’re facing unexpected career setbacks or choices. For example, voluntary layoffs have increased across industries, or some pre-retirees may not feel comfortable going back to work in an office environment in the midst of a pandemic.
Being proactive about your retirement planning means not only planning for your best-case scenario but also planning for unexpected events that could throw a wrench in your ideal retirement timeline.
As you near retirement, one of the best things that you can personally do to prepare against the unexpected is to budget for a longer retirement. Whether this means you retire earlier than you had planned, or you live longer, you likely won’t regret putting extra savings aside just in case.
One of the easiest ways to do this is to take advantage of the extra funds you’re permitted to contribute to retirement accounts when you are age 50 or older. For example, you can contribute an extra $6,500 to your 401k in 2020 if you’re 50+. These extra contributions can help you pad your nest egg just in case you decide to retire earlier than planned.
It can be a natural gut-reaction to start Social Security at 62 when you retire. However, if you retire earlier than you anticipated, you may want to consider delaying taking Social Security. While this can seem counterintuitive, it can dramatically impact the benefit you receive.
For example, the benefits of those who claimed at 70 tend to be 77% higher than those who started claiming at age 62. If you have savings that you can access in early retirement, saving Social Security for several years down the line can help you to extend the life of your savings should you unexpectedly retire earlier than planned.
Employers who are offering voluntary layoff plans often have early-retirement packages or some kind of severance available. Even if the layoff isn’t company-wide and you’re individually feeling pushed to retire, you may be able to negotiate severance or early-retirement package that will benefit both you and your employer during a challenging season.
Some employers offer partial pay depending on how long you’ve been with the company, and additional health insurance coverage that can bridge the gap between early retirement and age 65 (when Medicare becomes available).
If you’re planning to retire early, it may be time to reevaluate your lifestyle to ensure it fits your new retirement timeline. For example, you may have planned to downsize several years into retirement. Now, you may look to downsize sooner to free up cash flow or eliminate a mortgage payment for a few additional years.
This can squeeze a little bit more time out of your current savings, and allow you to use your funds to cover your other current (and future) expenses. You can also eliminate other unnecessary lifestyle costs by paying off or getting rid of a car payment, relocating to a lower cost of living area, or evaluating your current monthly budget to see what small but ongoing expenses you can trim.
Medicare isn’t available until you are 65 or older. So, if you plan to retire early without extended health insurance through your employer, you may need a new strategy. You can either seek out new health insurance through the healthcare marketplace, or you can look to enroll in COBRA. Unfortunately, both private health insurance and COBRA can be more expensive than the subsidized plan through your employer. This is something you will need to consider as part of your early retirement budget.
If you’re considering early retirement, you don’t have to weigh the pros and cons alone. Get in touch with us today! We are happy to answer any questions you may have, and help you build a unique retirement plan.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.