Retiring early

Coping when the situation is unavoidable

The pandemic seems to be driving a surge of early retirements as businesses close or downsize and older people weigh the health risks of continuing to work.

The share of unemployed people not looking for work who called themselves “retired” increased to 60% in April from 53% in January, according to a recent study. The study was done early in the pandemic, before tens of thousands of businesses nationwide closed permanently and others began offering early retirement to trim their workforces.

“It seems to be a persistent and quite widespread phenomenon,” says study co-author Michael Weber, an economics professor at the University of Chicago.

Unfortunately, many people haven’t saved nearly enough to avoid a steep drop in their standard of living when they retire early, financial planners say. Even those with substantial retirement accounts could make hasty decisions that cause them to run short of money.

1 Retirement budget Tally your expenses and identify any you can trim. Include irregular expenses, such as home repairs or a car replacement, that you’re likely to face in coming years.

Your “must-have” expenses should include health insurance, says certified financial planner Catherine Valega. People typically must be 65 to qualify for Medicare. Until then, prepare to pay for coverage because going without is especially dangerous during a pandemic.

2 Evaluate all income You may face decisions about what to do with workplace retirement accounts, such as whether to roll a 401(k) account into an IRA or how to take a pension. You may have to evaluate a buyout offer or figure out what to do with stock options.

These are complex decisions with huge consequences, so consider talking to a fee-only financial planner. The National Association of Personal Financial Advisors, the Association for Financial Counseling & Planning Education and the XY Planning Network offer free counseling sessions for those whose incomes have been affected by the pandemic.

3 Withdraw wisely Withdrawing large amounts from your retirement funds early in retirement can dramatically increase the odds you’ll run out of money. A 4% withdrawal rate — where you take 4% of your retirement account balance the first year and adjust that payout for inflation each year afterward — has historically allowed savings to last for a 30-year retirement. Some financial planners recommend a more conservative start of 3.5% or 3%, or starting at 4% and cutting back during bad markets.