Pandemic-Prompted Retirements: Now What?

It’s no secret that the COVID-19 pandemic changed life the way we once knew it. In addition to the health threats of the virus, the pandemic inflicted a storm of unforeseen circumstances – a sudden boom in the stock market, record job losses and unemployment rates, and the loss of time with loved ones. For many, these factors meant leaving the workforce prematurely, and retiring earlier than expected.

As a matter of fact, research found that more than 3 million Americans retired early due to the COVID-19 pandemic1. Whether voluntary or forced, early retirement has seen an upward trend, catching many off-guard. If you find yourself entering retirement earlier than you initially anticipated, you’re in good company. But what exactly, happens next?

While an unexpected retirement comes with some daunting financial challenges, there are some steps you can take to help maximize your money as you settle into your post-workforce lifestyle. Consider the following resources to help you understand and weigh your options.

Take Inventory of Your Expenses
While spending was once thought to decrease in retirement years, this simply isn’t the case anymore – especially when you factor in today’s inflation. And the best way to manage your spending in retirement is by taking inventory of your expenses. Start with the essentials – shelter, food, transportation, and utilities. Since these are the things you really cannot go without, they’ll need to be factored into the top of your budget. You should also try to set aside some money each month for a “rainy day” or emergency fund – these will come in handy for the inevitable home repair, car replacement, or large, unexpected expense down the road. While early retirement has the potential to quickly deplete your savings, you can still find unique and creative ways to save and maximize your money. Check out our blog for money-saving tips you can easily implement in your retirement lifestyle.

Strategize Claiming Social Security
When it comes to claiming Social Security benefits, there are two schools of thought. The first is to defer your benefits for as long as possible, ideally, until you reach the full retirement age of 66 or 67 or can maximize your benefit at age 70. The longer you wait to start collecting, the bigger the amount you will receive each month. The second school of thought is to claim Social Security benefits as early as possible, often around age 62, stemming from fear that the Social Security trust fund will run out of money.

Whichever school of thought you belong to, it’s important to consider your age. While the average person opting to receive benefits at the minimum age of 62 could expect to receive about $1,350 per month, waiting until the maximum age of 70 could allow them to receive monthly benefits in the ballpark of $2,376 – a notable difference2. If you wish to defer your benefits until you’ve reached the full retirement age, but need cash flow now, consider bridging the gap with some of the following resources.

Collect Your Pension
If you have an employer-provided pension, now is the time to start collecting. However, pension payouts come with a choice between monthly or lump-sum distribution methods. While traditionally paid out monthly, more and more employers are offering one-time lump sum payouts as an option. Before selecting your preferred method of distribution, you’ll want to consider the tradeoffs, pros, and cons of each. While a lump sum payout may provide more flexibility, you’ll assume total responsibility of managing and protecting the entirety of your funds. Make sure to consider the risk of potentially outliving your money or reducing your benefit due to risky investments.

Withdraw from Your 401(k)s and IRAs
If your employer-sponsored plan was a tax-deferred retirement plan, such as a 401(k) or traditional Individual Retirement Account (IRA), you may consider withdrawing from these accounts to supplement your income as you settle into retirement. Funds can be withdrawn without penalty after the age of 59 ½. Should you elect to withdraw before this age, you’ll need to pay taxes on the money as it is considered income. Also, note that these withdrawals could place you in a higher income tax bracket and potentially affect eligibility for tax credits and other benefits.

Tap into Your Home Equity
Need another source of cash flow to help you navigate early retirement? Look no further than your home. While traditional thinking dictates that personal net-worth is largely in the form of savings, stocks, and bonds – the reality is actually quite different. Research shows that home equity now represents more than two-thirds of total wealth for the average 65-year-old American couple3. And with home values skyrocketing, you may be surprised to find out just how much equity is in your home.

Tapping into this equity with a Home Equity Conversion Mortgage (HECM) – also known as a reverse mortgage – could be a viable option for those who have retired early. Available to homeowners ages 62 and older, a reverse mortgage allows you to convert a portion of your home’s equity into cash to use however you wish. If there is an existing mortgage on your home, the money from the reverse mortgage is first used to pay off the loan. And since no monthly mortgage payments are required on a reverse mortgage4, you can eliminate that monthly expense and keep more cash on hand to use as you see fit.

Better yet, the Federal Housing Administration (FHA) just announced that the HECM national lending limit is set to increase for 2022 – meaning you may be able to access more cash from your home than previously available.

While an unexpected or early retirement presents its share of challenges, it can also be a catalyst to make some positive changes to your life. With more time on your hands, you’ll be able to spend more time doing the things you love, discover new hobbies, and create countless memories with friends and family. And if you could use an additional source of funds to help you settle into your new retirement lifestyle, consider tapping into your home equity.

At Longbridge Financial, reverse mortgages are all that we do. And we’re committed to recommending the reverse mortgage program only after we’re certain the program is right for you and meets your needs. We’ll get to know you, your goals, your home, and your finances as we discuss your options. And if we ever feel like a reverse mortgage is not the best option for you, we will tell you so.

Want to see how much equity may be in your home? Run the numbers with our Free Quote Calculator and for more information, contact the Longbridge team of experts today.

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