The COVID-19 pandemic has had a huge financial impact since cases first started multiplying rapidly back in March. Now, almost five months later, unemployment is still rampant and the economy is stuck deep in recession territory.
All of this is causing Americans to rethink their near-term and long-term financial plans, so it's not surprising to learn that 19% of U.S. adults now intend to push back their retirement date, according to a new Nationwide survey. Of course, delaying retirement is a smart move for those whose finances have taken a turn for the worse in the course of the pandemic. But is it the right move for you?
The benefits of delaying retirement
Maybe your income has taken a hit in recent weeks. Or maybe you've lost your job completely, and that lack of income has forced you to dip into your near-term or retirement savings. In either scenario, delaying retirement is a smart move for a few key reasons.
First, by postponing that milestone, you can leave your remaining savings alone for a longer period of time, thereby stretching that money further. Secondly, delaying retirement gives you an opportunity to add to your IRA or 401(k), which means that if you had to take a withdrawal to pay the bills during the pandemic, you may get a chance to fully replace that missing chunk of cash.
Finally, if you delay your retirement, you may get a chance to grow your Social Security benefits. For each year you hold off on taking benefits past full retirement age, you get an 8% boost, up until age 70. If your full retirement age is 67, you could snag a monthly benefit that's 24% higher by virtue of waiting.
Don't assume delaying retirement is an option
While delaying retirement is a good way to make up for the financial hit you may have taken these past few months, you can't assume you'll get to work as long as you'd like. Unfortunately, older workers get pushed out of jobs all the time, and while it's technically illegal to discriminate against employees based on their older age, it still happens.
Additionally, you never know if health issues will render you unable to work down the line. And even if you stay healthy, you may need to stop working sooner than planned to become a caregiver for your spouse. As such, while there's nothing wrong with planning to delay retirement, you also need a backup in case you're unable to do so.
Focus on your personal financial recovery
It may take some time to get back on your feet after the COVID-19 crisis subsides. But if you make an effort to recover in the near term, you may not have to delay retirement all that much -- or you may not get hurt too badly if your plans to delay retirement don't come through.
What steps can you take to recover? For one thing, aim to replenish any funds you may have withdrawn from your retirement plan. You can do so by cutting other expenses to free up that money or getting a second job (which may not be feasible or safe right now but should be far more doable once the economy recovers and things return to normal).
If you didn't take a retirement plan withdrawal during COVID-19 but you stopped making contributions to your IRA or 401(k), aim to play catch-up and increase your savings rate once you're back to work or your full income is restored. And again, this may require you to get a second job, but if you do so temporarily, it could work wonders for your financial picture.
Unfortunately, a lot of people are hurting right now as the pandemic rages on, and if the current crisis is causing you to rethink your retirement plans, that makes sense. While delaying retirement is certainly not a bad idea, you should also prepare for the fact that it may not possible. Instead, focus on the things you can do immediately following the crisis to improve your long-term financial outlook.