Most of us will admit that 2020 has not gone as expected. This year has thrown a wrench in so many plans, goals, and vacations. If you are like many people approaching retirement, this pandemic and ensuing global crisis may have brought you to retirement earlier than expected. You may have planned to retire in the next two to three years, but with unexpected layoffs, you may find yourself feeling forced to retire now. It never feels good to lose control over your plan, especially when just back in January, everything was right on track. But that’s life. The quote that rings so true during these times is, “life happens while you’re busy making other plans,” and part of life is adapting to the unexpected. You may feel scared and ill-prepared for a premature retirement, but we are here to help. Follow these steps to get on track with a retirement that you may not have expected, but that can still be amazing and fulfilling.
- Get Your Health Insurance Squared Away ASAP
This step is so important because you never want to be without health insurance. Chances are, you can probably apply for COBRA to stay on your current health insurance for the time being. If you have reached Medicare eligibility, age 65, apply for the program right away. It is important that you talk with a Medicare expert as there are many different options when it comes to Medicare. If you are not yet at Medicare age, you will need to find a plan that will cover you until you reach age 65. Be aware that costs of health insurance before Medicare will be very expensive almost no matter what, so it’s a cost that you just have to deal with until you reach age 65. If you are married, and both you and your spouse were covered under your employer’s plan, make sure you have a health insurance plan not only for you, but also your spouse (and dependent children). This is especially important if one spouse has reached Medicare age, but the other has not. This step is absolutely crucial and you want to make sure you and your family are covered by a health insurance plan. Please let us know if you need a referral to a Medicare or health insurance expert.
- Update Your Retirement Plan
At Amy Noel, Inc., every single one of our clients has a robust retirement plan that we alter for all of life’s twists and turns. If you find yourself needing to retire earlier than expected, make sure you update your retirement plan and see what is realistic for you going forward. It is very possible that you may need to alter your yearly spending or tweak your retirement income plan. This is a good time to discuss distribution strategies and other income options you may have. We can run alternative projections to find out what changes need to be made to ensure you can still have the retirement you’ve always dreamed of. Tweaking your plan can make early retirement a bump in the road instead of a disaster.
- Review Retirement Income Options
Now is the time to review all your retirement income options and to make adjustments as necessary. If you are lucky enough to have a pension, review its provisions and see when makes sense for you to start it. If you are married, make sure you consider the survivor benefit options. Also, review your social security benefit options and request a new social security statement so you can have the most up to date figures. You can request one by going to ssa.gov. Remember that just because you are retiring early, doesn’t mean you have to start social security before your full retirement age. Starting your pensions and social security are irreversible decisions and they can greatly affect your future retirement. It is imperative that you look at all of your options before starting these income streams to make sure it is the right decision for not only right now, but for your future.
- Review Your Risk Tolerance
It is a common misconception that in retirement you should be conservative with your investments and limit exposure to risk. What many people don’t realize is that once you retire, you don’t actually need all of your investments right at once. You need your assets to provide you income for your entire retirement, which could be thirty years or more of your life. For this reason, you need your assets to last the rest of your life, as you never want to run out of money. It is important to take that risk in the market to make your money work for you. After all, inflation is a retiree’s biggest threat. So, even though you are retiring and no longer bringing in a salary, that doesn’t mean your risk tolerance should change significantly. Now is a good time to review the risk tolerance of your portfolio and make sure it isn’t too aggressive or too conservative. No matter where you are in life, it is important that you are comfortable with the risk you are taking.
- Consider Tax Savings Strategies
Depending on your retirement income, many retirees find themselves in a lower tax bracket than they were while they were working. Without your salary, your tax situation may have greatly changed, so make sure you set plans to take advantage of your now lower tax bracket. Early retirement can be a great time to consider strategies like Roth conversions, property sales, and selling highly appreciated stock. Take the opportunity to sit down with your tax advisor to find out how you can make your new situation work to your advantage. If you are eligible, you should also consider making final contributions to IRAs or Roth IRAs, because when you are retired and are no longer making earned income, you can no longer contribute to these accounts.
- Prepare Emotionally
Planning for retirement isn’t just about the numbers, it’s also about planning for what you want to do and who you want to do it with. Retirement necessitates a large adjustment and occasionally retirees can feel unfulfilled, lonely and stir crazy without their careers and coworkers. If you find yourself retiring a few years before you imagined, it may be even harder for you to mentally process the sudden increase in free time and decrease in social interaction, especially on top of the restrictions that come with COVID-19. As this new chapter in your life begins, think about things you want to do and people you want to surround yourself with so that you continue to live the fulfilling life you’ve been working this whole time to attain. Of course, you may not be traveling or have a booming social life during the pandemic, but it is important to fill your day with activities you enjoy. Retirement is a huge lifestyle change and it’s important that you aren’t just financially prepared, but are also mentally and emotionally prepared.
You probably didn’t plan for an early retirement, just like no one planned for this pandemic. As scary and uncertain as times may seem, remember that you always have other options and we want to help you discover those options. Here at Amy Noel, Inc. we take pride in being gifted problem solvers. Give us a call today so we can help you navigate this life transition.
ALANA MACY, CFP®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against losses.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.