The COVID-19 crisis is impacting Americans of all ages, and older adults are no exception. If health concerns are keeping you out of the workforce, or fear of losing your job is tempting you to call it quits yourself in an attempt to take control of the situation, then you may be contemplating the idea of early retirement.
There are plenty of good reasons to leave the workforce sooner than you may initially planned. First of all, if your job increases your risk of falling ill with COVID-19 in any way, then leaving it is a good way to protect your health. But medical concerns aside, retiring early could allow you to enjoy your newfound freedom when you're younger and are apt to have more energy for the things you've always wanted to do. But before you pull the trigger on retirement during these uncertain times, consider the following potential hiccups.
1. You might have less retirement savings than you think
Many retirement plans lost value earlier this year due to COVID-19's impact on the stock market. Thankfully, stocks have rebounded significantly, but you may still find that you have less savings available than anticipated when you check your IRA or 401(k) balance. If that's the case, it could pay to hold off on early retirement to give your savings plan time to fully recover.
2. You might shortchange yourself on Social Security
You're entitled to your full Social Security benefit based on your earnings history once you reach full retirement age, or FRA. FRA is a function of your year of birth, and it's either 66, 67, or somewhere in between. Now you can claim benefits as early as age 62, but for each month you file ahead of full retirement age, that income stream gets reduced -- for life. Therefore, if retiring early means claiming Social Security right away, you could end up with a lot less income throughout your senior years. And while you might normally have the option to hold off on Social Security and live off of your savings for a while, right now, that may not be feasible if you're looking at a lower balance than you did before the pandemic.
3. You might incur huge expenses paying for health insurance
Many workers rely on their employers for health insurance. If you wait until age 65 to retire, you'll be able to sign up for Medicare right away to avoid a gap in coverage. But if you retire before age 65, you'll need to pay for health insurance yourself, at which point a private plan may prove far more expensive than Medicare. And while you may be inclined to go without insurance, don't -- that's a bad idea in general, and an especially poor choice during a global health crisis.
Is early retirement a good idea right now?
At a time when so many seniors are being forced into early retirement, making that choice yourself could be liberating. But before you decide to end your career, make sure you're in a solid enough financial position to do so. If you still have the option to work some more, it could pay to keep at it if your job isn't putting your health at risk.
Right now, your options for filling your days may be limited because of the pandemic. Instead of kicking off retirement with loads of travel and fun outings, you may find that you're instead stuck staying home. And if that's the case, it almost pays to keep your job and let it serve as a source of distraction until there's better news -- and progress -- on the COVID-19 front.