Suddenly retired? Here’swhat you need to do next
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 workwho called themselves “retired” increased to 60% in April from 53% in January, according to a study by three economists. The studywas done in the early days of the pandemic, well before tens of thousands of businesses nationwide closed permanently and others began offering early retirement packages 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.
Create a 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 Catherine Valega, a certified financial planner in Waltham, Massachusetts. People typically must be 65 to be eligible for Medicare. Until then, prepare to pay for coverage because going without is especially dangerous during a pandemic.
If you had health insurance through your employer, you usually can extend that for up to 18months, thanks to COBRA, the Consolidated Omnibus Budget Reconciliation Act. But you’ll have to pay the entire premium plus a 2% administrative fee. Last year, the average annual cost of health insurance was $7,188 for a single person and $20,576 for a family, according to the Kaiser Family Foundation, which tracks health insurance trends.
If your spouse has group health insurance and can add you as a dependent, that’s often the most cost-effective way to go. If not, youmay find a better deal throughHealthCare.gov, since most people will qualify for tax subsidies that reduce premium costs.
Evaluate all income sources
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. Youmay have to evaluate a buyout offer or figure out what to do with stock options.