Recent surveys have indicated that many of us are rethinking our retirement plans because of COVID-19. In fact, one survey from the nonprofit group Life Happens suggests that a whopping 43% of Americans say they plan to postpone and continue working past their retirement date because of COVID.
This is troubling for lots of reasons. And while it’s impossible to make blanket statements or give advice that fits the masses, there are three important questions you need to ask yourself before delaying your retirement.
Three Important Questions
Before you make a decision to postpone your retirement, it’s important that you make an honest assessment of where you are – and how you got there. Ask yourself:
- How is your health? Did you know that 4 out of 10 current retirees said they were forced to retire earlier than planned because of health issues? Of course you don’t know what the future holds for you in terms of your health, but an honest assessment is a great investment in you.
- How is your asset allocation? More specifically, if you were expecting to retire in say 3 years, were you invested 100% in equities hoping for one or two “great” years from the stock market? Not reallocating your portfolio away from equities the closer you get to retirement is actually a pretty common mistake. But it can be devastating too.
- Did you alter your financial plan because of COVID? Asked another way: did you change your investments because you were scared? Trying to time the market based on fleeting emotions is a dangerous game.
Sure, Delaying Might Make Sense…
Intuitively, working in your retirement years and saving more will add to your retirement nest egg because you’ll be adding money versus withdrawing. But, if your asset allocation remains inconsistent with your retirement goals and risk profile, then you’re setting yourself up for disappointment.
One piece of good news is that if you postpone your retirement and keep working, you can elect to delay collecting Social Security benefits, which will have a significant impact on your monthly benefits.
For example, you can increase your monthly Social Security benefits by 8% for each year you delay collecting after you reach your full retirement age. If that age is 66, for example, you can increase your monthly benefit by 32% by delaying until age 70.
Mike Tyson as Financial Planner
No matter what your situation, it’s important to remember the words of Mike Tyson when he said, "Everybody has a plan until they get punched in the mouth." Think about that.
- You plan to work 10 more years and save as much as you can. What happens if you get sick next year? Or your spouse gets sick? Or you become the primary caregiver for a parent? Or you get downsized?
- You’re counting on double-digit stock market returns for the next 10 years. What happens if equities have low, single-digit returns?
- You are expecting to sell your house for double what you paid for it when you retire and then have a sizeable cash balance to contribute to your retirement. What happens if we have a real estate slump precisely when you need to sell?
The reality is that planning for the future is really tough right now. There are so many variables that you need to consider and so many assumptions you need to make.
Your financial advisor can help you make sound financial planning decisions based on your risk tolerance and your goals.
Don’t go it alone.