Even before the COVID-19 pandemic, unexpected early retirement was on the rise. The broad challenges of globalization combined with shifting workplace dynamics had led to a wave of downsizing, buyouts, and sudden termination. COVID-19 is accelerating many of those changes to how, when, and where folks work, but it’s also had an immediate and devastating effect on employment. As I write this, more than 30 million Americans are out of work. Some of those jobs will come back once we make it through the pandemic. Others won’t, which will force more older workers to start thinking about retiring ahead of schedule.
On the other hand, there’s also a growing group of folks who have used distance from their daily grind to reflect on their careers and their lives. Working from home and the quarantine experience have inspired them to explore an early retirement as a means to making some meaningful changes.
Whatever your reasons are for transitioning into unexpected retirement, these 4 items should be at the top of your to-do list:
1. Make a rough net worth statement.
A clear-eyed assessment of your financial picture starts with a balance sheet that weighs your assets against your liabilities. The more detail you can provide the better, but some of the must-have items include:
- Real estate
- Personal valuables (vehicles, jewelry, etc.)
- Bank accounts
- Investment accounts
- Retirement plans (401(k), ESOP, IRA, pension, etc.)
- Business interests (ownership, equipment, etc.)
- Credit card debt
- Vehicle loans
- Personal loans
2. Reassess your monthly budget.
Many new retirees find themselves creating a monthly budget for the first time as a way to adjust to living off a fixed income. In an unexpected retirement, getting a handle on your household spending is especially critical. The rest of your financial decisions will depend on your available income from things like investment income, Social Security, pensions and rental income, and how much you need to meet your monthly expenses going forward.
Making a budget is also a great way to identify expenses that you should consider eliminating. Money spent on recurring memberships and subscriptions you only use occasionally might be put to better use helping to stabilize your finances as you transition to retirement. It also might be time to stop letting your adult children piggyback on a family cell phone plan or drive your second car without chipping in.
3. Ask yourself, “What’s next?”
It’s important that you try to limit your emotions during the first two steps of this process. But now that you’ve clarified your financial situation, it’s time to assess the reasons for this unexpected retirement and determine what you want the next part of your life to be like.
The most successful retirees that we work with start having these conversations years in advance. If you and your spouse have an aligned vision, an unexpected retirement might be an accelerant that will propel you into a life you’ve been dreaming about together. You just might need to do some extra work with your fiduciary advisor to cover the financial part of this transition earlier than anticipated.
On the other hand, folks who really don’t want to retire and don’t have a blueprint in place will find this transition much more challenging. One exercise that’s helped many of my clients is to create a Vision Board. That phrase turns off a lot of folks, but I’m not talking about making a collage of things you want to buy or places you want to go. I’m recommending that you and your spouse sit down and picture what you want your lives to be like 3 years from now, 5 years from now, 10 years, 20 years.
If it helps, divide a big sheet of paper into 4 columns and write it all down so that you can see what your golden years will be like. Maybe the 3-year column involves working part time to ease yourself into this transition. Maybe you’ll see a 5-year plan to starting and growing your own dream company. Or maybe you’ll want to start enjoying your assets sooner and move up some of those 10- and 20-year dream items.
For more ideas on how to build you ideal blueprint for retirement, check out my book, “Keen on Retirement: Engineering the Second Half of Your Life.”
4. Consider every available option.
Finally, it’s time to start arranging the details that are going to bring that retirement vision to life.
When we talked about the surge in unexpected retirement on my podcast, we discussed some of the big decisions that you and your spouse will need to make around health care, Social Security, and when to tap into your retirement accounts. I recommend listening to that episode or reading the shownotes for more info on those important topics.
Right now, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has added some additional options for folks facing an unexpected retirement in 2020. The headline item is that retirees do not need to take required minimum distributions in 2020. You can leave that money in your retirement accounts and let it grow for another year. Or, if you already took your RMD earlier in the year, you can roll it back into your account.
Finally, if your unexpected retirement is an involuntary result of COVID-19, you might qualify for a coronavirus-related distribution (CRD), which allows you to withdraw up to $100,000 out of your retirement accounts in 2020. Folks who are not yet 59 ½ can qualify for CRDs as well. You also have the option to pay that $100,000 back into your account within three years and stretch out tax payments on your CRD over three years instead of making one big tax payment in 2021.
Whether you’re viewing unexpected retirement as a challenge or a welcome opportunity, it’s crucial that you weigh the pros and cons of all these details before making any moves. Contact us to set up a call or a meeting (virtual or in person) with one of my fiduciary advisors so that we can use the tools we can control to help you stay on course.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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