The past few months have taken a toll on many of us—whether through the loss of a job, a loved one, building anxiety and concern for finances, or the future of our world—we are all feeling it. There are very few people who haven't felt the effects of the current environment. Perhaps the most concerning is those who are nearing retirement age but are not quite there yet. Lay-offs are forcing those in the 60-65 age range to consider how COVID-19 could impact their retirement plan.
How Will This Pandemic Affect Me?
If you have a 401(k) plan or any type of investment, you already know you have lost some money. Those who have become unemployed or furloughed have stopped investing so that needs can be met or may have even removed money from a retirement plan to live. If you are considering early retirement due to a job loss, experts are advising the following:
- Avoid claiming social security before age 70. Although you are allowed to collect social security at age 62, your benefit amount will be substantially reduced than if you wait until age 67 or 70. As of 2020, the maximum amount you will receive at age 62 is $2,265.00, at age 67, $3,011.00, and at age 70, $3,790.00 per month. The monthly payout doesn't increase at age 67 and age 70 if you choose to retire early at age 62 so you are stuck with the lower benefit for the rest of your life.
- Steer clear of tapping into retirement funds if at all possible. Early withdrawals (before 59 1/2) come with steep tax penalties. The CARES Act does provide for special circumstances where money can be removed from a 401(k) or IRA without tax penalties but the individual must meet one of the following requirements: be diagnosed or a have a spouse diagnosed with COVID-19, have a financial hardship due to COVID-19 such as unemployment, furlough, decreased work hours, or child care problems due to the virus.
- Collect unemployment if you are laid off as this will support you for a period of time. Some income is better than none.
- Borrow against your home or 401(k) if you are struggling financially.
- For those who are offered an early retirement package, look at all aspects to cover areas that you might not think of. For instance, you may lose your health insurance and you must be 65 years old to file for Medicare. Are you ready for all of the changes financially?
I Want To Invest More, Should I?
Some working people or retirees may be looking at investing more to prepare for the future. The draw of less expensive stocks may be tempting but only do so if you can recover from a loss as these are a risk right now. If not, consider adding money to a money market account or an annuity. Assessing your retirement plans is a wise decision, particularly in this economy. Choosing different venues of investment keeps your portfolio more diverse and protects from loss.
If you are concerned about how COVID-19 is going to impact your retirement, contact the team at Chandler & Knowles, CPAs. We have a team of expert specialists who will review your long and short-term investment goals to ascertain you are headed in the right direction.