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Pandemic-Induced Retirements: Is That Really the Best Idea?
The COVID-19 pandemic had an odd collateral effect on more seasoned workers. Previously distant retirement plans were suddenly within arm’s reach. Personal savings grew as economic impact payments were stowed away by those with uninterrupted employment. If you are one of those with a pandemic-induced retirement acceleration option, should you take the money and run?
By Alyzabeth R. Smith, CPA
The COVID-19 pandemic had an odd collateral effect on more seasoned workers. Previously distant retirement plans were suddenly within arm’s reach. In spite of the widespread health challenges of the pandemic, the bull market robustly charged on. As a result, many who were pondering retirement years down the road may have a realistic shot at a voluntary exit now. Personal savings among U.S. citizens are exceptionally high as economic impact payments were stowed away by those with uninterrupted employment. If you find yourself with a pandemic-induced retirement acceleration option, should you take the money and run?
Even though spending more time with your loved ones sounds delightful, working just a few more years could mean the difference between small gifts for the grandkids and big ones. Additional years of work are largely beneficial, even if done at a salary below your personal average. Holding off on retirement allows your assets a chance to continue to expand. In addition, delaying Social Security collection could mean bigger payouts when you do start receiving payments. If personal life expectancy is a concern, it’s important to note that delaying Social Security collection could mean larger survivor benefits for a spouse. Many times younger spouses retire early in order to spend time with an older retired spouse. In these cases, younger spouses can be adversely affected by diminished social welfare benefits due to a reduced term of service. The effect is even more impactful when the younger retiree earned less during that lifelong period of employment.
In addition to the social welfare ramifications, most people don’t want a decline in their standard of living when they retire. Even if one’s income remains the same in retirement as it was during full-time employment, the cost of general health care for aging individuals can be so steep that it significantly impacts standard of living. Once an individual reaches a period of frailty that requires regular care around the clock, retirement funds quickly deplete. It stands to reason that if you are healthy enough to continue working and have the opportunity to do so, the additional savings could offset some of those future costs. If there are current health conditions to consider, note that the cost of health insurance provided by an employer may be cheaper than the alternatives. With Medicare eligibility, an employer’s benefits may not be the most optimal, but it is important to consider this factor when making a retirement decision.
Retirement delay is not a permanent strategy, though. At age 72, you’ll have to start taking required minimum distributions from certain retirement plans. However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 made it easier for members of an older workforce to continue saving for a delayed retirement. If the COVID-19 pandemic resulted in work displacement, keep in mind that the expansion of a remote workforce may offer unforeseen opportunities for older employees, particularly those with years of senior-level technical experience. In addition, the flexibility of working from home might mean that the last few years of employment might involve a much easier schedule.
There is also anecdotal evidence to suggest that there might be more benefit to being in the workforce than just the money. Some say working longer keeps us sharp, resulting in fewer ailments.
The market may have been good to you over the years, and seizing the pandemic as a reason to leave the workforce might make sense at first blush. Before you take definitive action, though, consider the fact that reinvention as opposed to retirement might be a better steppingstone to a higher quality of life further down the road.
Alyzabeth R. Smith, CPA, is a senior associate at Siegfried Advisory in Wilmington, Del., and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at alyzabeth_smith@msn.com.
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