The pandemic drove these Americans into early retirement. What you need to know before you take the plunge
Mary Ann Sergeant
Source: Kara Sergeant
After a year of grappling with the pandemic, many baby boomers have changed their retirement plans.
Mary Ann Sergeant, 65, worked as a pharmacy technician at Anna Jaques Hospital in Newburyport, Massachusetts for more than 15 years.
She had no plans to retire from the community hospital for a year or two. But the stresses of being a frontline health worker grew too great, and she retired in early December.
“I felt like at that point there was no other choice I could have made,” she said. “I really didn’t want to go.”
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Sergeant isn’t alone in her early retirement leap.
Around 28.6 million boomers reported being unemployed due to retirement from the third quarter of 2020, making for a total national cohort of around 71.6 million. That’s 3.2 million more than those who said they retired in the same period in 2019, according to a report by Pew Research.
“Perhaps, for some, they faced their mortality and imagined, ‘why am I going to work if this pandemic could shorten my life expectancy?’ I’m sure this hit a lot of people, “said Paul Gaudio, a certified financial planner and wealth planning strategist with the Bryn Mawr Trust in Princeton, New Jersey.
While Sergeant’s leap was due to rigorous health care requirements, boomers across the country share feelings of wanting to retire early, especially women.
Americans, who are expected to work past the age of 67, fell to a low of 32.9% in March, a poll by the New York Federal Reserve found.
“The greatest risk of early retirement is that you will need to hold on to your savings longer,” said Jude Boudreaux, CFP and partner at the New Orleans Planning Center.
He said leaving the workforce too early could put additional pressure on an investment portfolio depending on how much someone has saved.
“You are entirely dependent on your financial assets, and hopefully that base is enough to meet the standard of living for a normal life expectancy,” said Gaudio.
The greatest risk of early retirement is that you will have to hold onto your savings longer.
Partner in the planning center
After entering the numbers, Sergeant knew early retirement was within reach.
She paid off her home in Merrimac, Massachusetts, and paid for her last car three years ago.
She also has retirement plans in her 401 (k) and 403 (b) plans from jobs throughout her career, along with a “very small pension” from the hospital.
“I knew financially that I could do it most of the time, and that was a big part,” she said.
However, many older workers are not so lucky.
Just over half of households with workers ages 55 to 64 have retirement accounts, and their average value is $ 134,000, a report from the Center for Budget and Policy Priorities shows.
These balances can be $ 7,500 per year for men and 7% less for women who typically live longer, provided they start withdrawing at age 65.
Apply for social security
“I think the hardest question is when to go to social security,” said Boudreaux.
While retirees may receive checks by the age of 62, there is an incentive to delay payments.
Individuals who do not access social security until they reach full retirement age may receive higher monthly checks for life, depending on their year of birth. A retiree can receive a higher payment up to the age of 70.
For example, those born in 1957 have full retirement ages of 66 and six months.
If they’re eligible for $ 1,000 and start earning by age 62, they’ll get just $ 725 per month – a 27.5% discount on life, according to Social Security.
There’s a reduction of about 8% a year, or two-thirds percent a month, Boudreaux said.
Retirees lose $ 3.4 trillion in social security income, an average of $ 111,000, if they take benefits too early, according to a report by investment firm United Capital.
Delaying until full retirement age offers the highest payout, but that’s not an option for all retirees.
Sergeant, for example, received social security checks in January, six months before her full retirement age.
Fortunately, her retirement savings and small annuity can replenish her reduced payments. She also works part-time in the hospital at least once a month.
Bridging the Medicare Gap
Another significant retirement expense is health care costs.
The average 65-year-old married couple can spend a whopping $ 295,000 on retirement without long-term care, Fidelity estimates in 2020.
For some employees, early retirement means separation from their company health insurance.
After years of coverage from her employer, Sergeant had to apply for Medicare and an additional plan. With offices closed due to the pandemic, she said it was her biggest retirement challenge.
However, retirees under 65 do not qualify for Medicare and may have costly navigation options.
“Make sure you are aware of the costs and realities of buying your own policy through an exchange or broker,” said Boudreaux.
Some retirees fill the void with a spouse’s job insurance, COBRA, or even their company’s retiree health benefits. According to a survey by the Kaiser Family Foundation, plans for retirees are less likely to be an option.
“Anyone who takes the proverbial leap beforehand must consider the medical costs, be it for themselves and possibly for a spouse,” said Gaudio. “These numbers can be staggering.”
Consider a “retirement test”
Boudreaux said there was also a risk of retiring to be bored later.
Some retirees may choose to “retire” to switch back to the workforce.
39 percent of workers 65 and older have retired, according to a report from nonprofit research firm RAND Corporation.
“If this is related to stress and burnout, I would really encourage them to take a step back before stepping back,” he said.
He suggests trying a leave of absence and planning a three or four week break for a “test retirement”. If you feel refreshed afterwards, you may be able to continue working a little longer.
Fortunately, Sergeant has plenty of ways to stay busy after retirement.
After a relentless year, she is relieved to spend time at home where she enjoys reading. While many stores have not yet reopened, she is eager to practice yoga or take classes.
She also likes to work part-time in the hospital once a month.
“It’s a good thing about our jobs. We can do that and make our way out easier,” she said.