From pay cuts to reduced employer retirement savings matching, COVID has no doubt impacted retirement for many people planning to retire both in the near and far future. According to a MoneyRates survey conducted in late March 2020, 36.4% of Americans within 20 years of retirement expect the COVID-19 crisis will delay their retirement. That number might not seem so surprising when you consider that 37.4% of workers aged 45 to 64 have lost their jobs or a portion of their income, according to the same survey.

Even before the pandemic, only a quarter of Americans were on track with their retirement savings, inclusive of those in their 50s, according to the Edward Jones study, The Four Pillars of the New Retirement. In part, that is because what you need to retire is not a small number. According to Fidelity Investments, to retire by age 67, you should have 10 times your income saved.

While many employees are anticipating that they will be working longer to secure a sustainable retirement savings as a result of COVID’s economic impacts, others are retiring earlier than they planned in turn making their retirement a lot less comfortable. 

Here’s how COVID and the down economy are impacting retirement. 

Retirement 2021: Many people Are Retiring Early

Lots of older Americans are suddenly finding themselves out of work. 

Some are actively hoping to rejoin the workforce. Between September and October 2020, the number of job seekers aged 55 and older who were out of work for 27 weeks or more and still looking jumped from 14% to 26.4%, according to the Bureau of Labor Statistics. Months later in December 2020, the unemployment rate held steady at 6.7%— meaning that older job seekers are facing increased levels of competition that is not likely to go away anytime soon.

Unfortunately, many older job seekers will never make it back to the workforce, at least not in full-time roles comparable to their previous positions. Approximately 4 million workers age 55 to 70 are expected to be forced into early retirement due to the COVID-19 pandemic, according to a report from the Retirement Equity Lab at The New School.

For those who have the option of staying in their current position, health and safety are a very real concern. The immune system becomes weaker as we age making older populations more vulnerable to COVID-19. The fact is that 95% of COVID-19 deaths in the US have occurred among people aged 50 or older. Workers between the ages of 55 and 65 simply face a greater risk than their younger counterparts, particularly if they have underlying health conditions, such as obesity, diabetes or high blood pressure. This means that older members of the workforce— those closer to retirement— face a challenging dilemma if they cannot work remotely: is the risk of getting sick worth returning to work at all?  

For those retiring early, paying for health care costs before Medicare eligibility at age 65 can be extremely expensive. For those lucky enough to get a severance package, a continuation of health benefits for a determined length of time can be instrumental in making a more comfortable retirement possible. 

Also, early retirees by choice or default should consider that claiming Social Security benefits earlier than planned can mean a smaller monthly benefit. A person’s Social Security benefit automatically increases 8% every year beginning at age 62 (for people born after 1943) until age 70. 

For those retiring early as a result of the pandemic-stricken economy, they are generally doing so with less savings and fewer benefits available to them. This means that retirement itself means managing tighter finances for the long-haul. 

Retirement 2021: Others are working longer

Not everyone is fast-tracking retirement. Even before the pandemic, one in four working households were not contributing to retirement savings. The pandemic has resulted in an additional 18% of households contributing less toward retirement, most to help buffer some loss of income, according to a survey by Bankrate.

According to The Four Pillars of a New Retirement report, nearly a third of Americans (29%) planning to retire have pushed out their plans for financial reasons related to the COVID-19 pandemic. 

In part, this is because many older Americans are not just supporting themselves. One in four of all parents with adult children, or 24 million Americans, have had to provide their children with financial support due to the COVID-19 pandemic. People need more cash fast in the down economy, and they are looking to their retirement funds to get it. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, made it easier than ever for people to tap into their retirement savings. Through the CARES Act, “early withdrawals taken in 2020 due to COVID-19 hardships will not be subject to the 10% additional tax under Sec. 72(t) or the 25% additional tax on SIMPLE IRAs under Sec. 72(t)(6), if certain conditions are met.”

People are taking advantage of this access to retirement funds. According to a survey by Bankrate, upwards of 27% of those with retirement accounts have either already tapped into them or plan to do so.

The Power of Income

Experts warn against taking early withdrawals, if possible. Thinking long-term and staying the course by keeping up retirement contributions and taking full advantage of an employer match, for example, will pay off in the long run. To prevent having to dip into retirement savings, experts recommend prioritizing an emergency fund. 

It’s also worth remembering that with the markets as volatile as they are, by taking an early withdrawal, you risk selling your investments at a lower value than they might be worth in the future. Even if the markets are doing well, by taking out retirement money early, you lose out on the potential future gains of that retirement plan money.

This is why an income-focused approach can be so powerful in the lead-in to and early years of retirement. With income coming in every month or quarter, your portfolio is not so much left to the whims of the market and can continue to build and live off of your nest egg for years to come. 

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