Everyone has been affected by the COVID-19 pandemic and the recession that followed, but it's been especially hard for some retirees. In some cases, the nest eggs they spent decades building have taken a huge hit, and their savings just might not be adequate anymore.
Rather than worry about running out of money prematurely, some retirees may choose to rejoin the workforce due to COVID-19's effects until they can save enough money to retire for good. If this is your plan, do the following four things so you can get the money you need quickly and go back to retirement.
1. Create a new retirement plan
You probably have some idea of how much money you need to cover your living expenses for the rest of your life if you've already retired once, so it should be pretty simple to estimate how much you need to save going forward to have enough. If you're not sure or believe you may have underestimated your retirement costs before, you may as well start from scratch.
Multiply your average monthly living expenses by 12 to get your average annual living expenses. Then, multiply this by the number of years you expect your retirement to last, adding 3% annually for inflation. If you're unsure when you'll be able to retire again, just make your best guess right now. You can always change that later.
Enter all this information into a retirement calculator. If it asks about the investment rate of return, use 5% or 6% so your plan isn't ruined by slow investment growth. Your calculator should tell you how much you need to save overall and per month to reach your goal. Subtract money you expect from other sources, like Social Security, to figure out what you must save on your own.
If you're unable to save as much per month as you need to, you may have to delay retirement a little longer. On the other hand, if you can save even more per month than your retirement calculator recommends, you may be able to retire sooner. Redo the calculations with different retirement ages until you find the one that works best for you.
2. Be prepared for Social Security benefit taxes if you're already claiming
Social Security recipients could owe taxes on as much as 85% of their benefits. Some states charge Social Security benefit taxes, as well. How much you'll pay depends on your tax-filing status and how much taxable income you earn throughout the year. Here's a guide if you want to learn more about how this works.
3. Seek out other ways to earn money
You aren't just limited to a traditional nine-to-five job to earn money after coming out of retirement. If you want to earn even more money, consider starting a side hustle, as well. There are many options available to you now, many of which can be done online from anywhere, so it shouldn't be too hard to find something that matches your interests. You could offer consulting services, create and sell online courses, sell your own artwork, or rent out a spare property, just to give you a few ideas.
Make sure you're setting aside some of your earnings to go toward taxes, though. You'll still owe the government a cut of your earnings, even if you're not getting a traditional paycheck, and if you're not prepared, you could face a hefty tax bill. Your tax returns from previous years should tell you how much to pay each quarter if you've had this side hustle in the past. Otherwise, use this form to estimate how much you'll owe.
4. Take advantage of catch-up contributions
Adults 50 and older may contribute up to $26,000 to a 401(k) in 2020 and up to $7,000 in an IRA. That's $6,500 and $1,000 more, respectively, than adults under 50 can contribute. If you're able to set aside this much money every year, you will rebuild your nest egg much more quickly and be able to return to retirement sooner.
But don't panic if you aren't able to save that much. Just save as much as you can and try to cut back spending on discretionary purchases so you can put more money into your retirement account.
Coming out of retirement isn't fun, but if you follow the above steps, you should be able to get your savings back on track more quickly so you can get back to enjoying your free time.