Should You Retire During a Pandemic?
Given the coronavirus pandemic and resulting economic downturn, you might be questioning your retirement plans.
Consider your sources of income during retirement and how long you need it to last
Retiring without an income plan is like driving cross-country without knowing if you’ll have enough fuel to make it to your destination. Figuring out if you have enough money involves math, along with an analysis of how you plan to spend your time and money.
There are many strategies for figuring out whether you can afford to retire based on the amount of money you’ll need to replace a specific percentage of your current income. A popular rule-of-thumb suggests you should plan on replacing 70% of what you currently make.
Another strategy suggests following a “4% rule,” which explains if you withdraw 4% of your nest egg in your first year of retirement, then adjust annually for inflation, that a moderate 60/40 stock-bond portfolio should last for 30 years. However, given the climate of the COVID-19 pandemic, experts suggest modifying the 4% closer to 2.4%.
Research shows depending on the stock market to provide all, or a large portion, of your income for retirement can be a risky plan. However, there are solutions to consider, such as adding a fixed index annuity to your portfolio to provide reliable income in which you won’t outlive. (Guarantees are subject to the claims-paying ability of the issuing insurance company).
Research the best time to start social security
Knowing Social Security claiming strategies is important for every person, no matter when you’re planning on retiring. If you’re looking to retire sooner rather than later, consider these tips:
The longer you delay filing, the more money you’ll receive monthly. You can file as early as age 62 for benefits, but these could be permanently reduced by 30%, depending on your full retirement age (FRA), based on your birth year. If you choose to delay benefits past your FRA, you can receive a delayed retirement credit of 8% per year, or two-thirds of 1% monthly, up to age 70.
If you’re planning to work after you claim, you may have to return some benefits. The Social Security Administration sets annual earnings limits if you claim benefits before your FRA. If you are younger than the full retirement age, and earn more than the yearly earnings limit, SSA may reduce your benefit amount.
An increase in Social Security benefits might be in your future. Depending on how much money you earn, you may choose to file for a reduced benefit at age 62, then file to add a partial spousal benefit later, when your spouse claims his or her benefits. According to Social Security Benefits, “The spousal benefit can be as much as half of the worker's "primary insurance amount," depending on the spouse's age at retirement. If the spouse begins receiving benefits before "normal (or full) retirement age," the spouse will receive a reduced benefit. However, if a spouse is caring for a qualifying child, the spousal benefit is not reduced.”
Know your options for healthcare costs
To estimate your individual healthcare costs, you need to consider what would work better for your needs. If you retire before the age of 65 years old, you might consider finding health insurance for the interim, such as COBRA continuation coverage, insurance exchanges, employment that offers coverage, or your spouse’s employer.
Is the health insurance program for people who are 65 years old and older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). There are different parts of Medicare to cover specific needs:
Medicare Part A(Hospital Insurance) – covered inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
Medicare Part B(Medical Insurance) – covered certain doctor’s services, outpatient care, medical supplies, and preventive services.
Medicare Part C(prescription drug coverage) – helps cover the cost of prescription drugs, including many recommended shots or vaccines.
With Medicare, you have options for how you get your coverage, either Original Medicare, or Medicare Advantage. For more information about how Medicare works, Medicare drug coverage, and how it will work with your insurance plan, please visit Medicare.gov
Medigap is a Medicare Supplement Insurance that helps fill in ‘gaps’ in Original Medicare, and is sold by private companies. Original Medicare pays for a portion, but not all, of the cost for covered health care services and supplies. A Medicare Supplement Insurance policy can help pay for some of the remaining health care cost, such as copayments, coinsurance, and deductibles.
Go over your investment options with a trusted financial advisor
Experts advise meeting with your financial advisor at least annually to go over your short and long-term goals, financial strategies, and allows the opportunity for you and your advisor to communicate any changes or questions. If you’re nearing the end of your working career, consider turning a portion of your portfolio into income investments. Stable income investments can be beneficial in offsetting expenses in retirement. Evaluate your financial portfolio and what portion of your portfolio includes income securities, how much growth you want in your portfolio, and what your risk tolerance is. If you’re considering retiring in a pandemic climate, now is a good time to reevaluate if the investment aspect of your financial plan is still suitable.
Heading into retirement with a large amount of debt may not be the best plan. While some debt is unavoidable, it’s important to ensure nothing is weighing down your retirement plan. Take a look at your wallet – do you have any high interest credit cards? Experts advise trying to work toward getting any debts, such as a vehicle or mortgage loan, or even high-interest rate credit cards, down to a minimum and not incur any new debts. Consider consolidating any high-interest debts into a more manageable, low-interest debt if you have a home equity line of credit (HELOC). If you’re paying a large mortgage payment, consider if a smaller, less expensive property could fit your needs. Overall, if you feel as though your debts are unmanageable, meet with your financial advisor to come up with a solution.
consider how much money you’re spending, and how much you intend to spend during your retirement years. Depending on your unique situation, saving money could mean downsizing your home, or simply dining out less frequently. According to research, people typically spend more money in the early years of their retirement, because they are active and have the opportunity to travel more than when they were working.
Consider other sources of income
Passive income is a one-time investment that continually generates money, without requiring the investor to monitor or adjust their holdings. Here are four popular passive income strategies:
Real Estate- is one of the most preferred ways for investors to generate long-term returns. Rental properties are among the most common real estate strategies, allowing a borrower to gain a property for a down payment, and install reliable tenants who keep the money flowing. If rental properties aren’t appealing, consider real estate investment trusts (REITs). These typically pay out 90% of its taxable income as dividends to investors.
Peer-to-Peer Lending- this is the act of directly lending money to a person or business entity, where lenders and borrowers are connected via online platforms, such as Prosper or Lending Clubs.
Dividend Stocks- one of the simplest ways for investors to generate income. As public companies generate profits, a portion of these earnings are siphoned off, and funneled back to investors in the form of dividends. An investor can decide to pocket the money, or reinvest in additional shares.
Index Funds- these are mutual funds linked to a particular market index. These funds aim to mirror the performance of the underlying index they track, and are passively managed.
The bottom line
If you’re considering retiring in an uncertain climate, and need help navigating the current financial landscape, we’re here to help. Contact us for more information, or to find an advisor who will work to meet your financial goals.
 10 Moves to Make Sure You Have Enough Money in Retirement, Kiplinger
 Retirement Benefits, Social Security
 Social Security Benefits for Spouses, Social Security
 5 retirement planning mistakes to avoid during COVID-19, Market Watch
 What’s Medicare?, Medicare.gov
 What’s Medicare Supplement Insurance?, Medicare.gov
 Retiring into the pandemic, Money Talk
 Passive Income Investments: 4 of the Best, Investopedia