Early Retirement and the COVID-19 Pandemic: What You Need to Know

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The Coronavirus/Covid-19 pandemic has pushed many Americans into early retirement. For some, it is a result of unexpected layoffs or job eliminations. For others, it is simply a decision to speed up their planned retirement to avoid working in a tumultuous economy and changing workplace.

Taking early retirement voluntarily

If the opportunity to retire early comes your way, perhaps as your employer is downsizing or changing the requirements for an official retirement, you may want to seize it. But before you voluntarily step away from your employer, consider the following:

1. Check your retirement savings.
   The Covid-19 pandemic initially walloped the stock market, which sank around 30% before rising to hit all-new highs near the end of 2020. Even so, some retirement plans decreased in value and others may be at risk for volatility as the pandemic continues to affect the economy. Double check your retirement savings to make sure your finances (cash and investments) are sufficient to power you through two (or even three) decades in retirement.
2. Calculate how much you'll spend in retirement.
   Even if your investments have performed well, early retirement can eat through your savings if, for example, you're paying out of pocket for health insurance before Medicare kicks in. Make sure you understand what your needs and wants are, and how they translate into actual out-of-pocket spending before deciding to step back from a full-time paycheck.
3. Reevaluate when to collect Social Security benefits.
   You can start collecting Social Security at age 62, but you only get full benefits if you wait until you reach what's known as your full retirement age (usually 66 or 67, depending on the year you were born). For every year you wait past your full retirement age, your benefits will increase by 8%. On the other hand, if you begin collecting early, your monthly benefits will be reduced until you reach your full retirement age. Basically, leaving the workforce early can significantly decrease your Social Security income throughout retirement.
   
   As you evaluate your options, be sure to ask yourself these questions: Is retiring early worth the loss of these future benefits? Can you wait to collect Social Security until you're able to claim the full amount? How will your retirement income (and spending) be affected by your decision?
4. Consider the impact of early retirement on your mental health.
   Even in pre-pandemic times, it was challenging for many to leave behind the structure and socialization of work. But now that it is difficult to travel and meet new people, it may be even more challenging to acclimate to the retirement lifestyle.
   
   Before you leave the workforce, picture what your retirement will realistically look like right in the short term. Do you have a good support system? Will you have alternative ways to socialize? Will you be okay without the structure of a full-time job?

If your retirement is not voluntary

If you're retiring because you were laid off or returning to work could endanger your health, consider the following:

1. Know your rights.
   People over the age of 60 are generally at higher risk for Covid-19 complications, causing many older Americans angst about going back to their physical workplace. However, in many cases, you must return to the office when your employer reopens or you could lose your job.
   
   Because of the federal Age Discrimination in Employment Act, employers are not legally required to accommodate you because of your age — even though older Americans are more at risk of contracting Covid-19 and experiencing severe illness. But you may be able to seek accommodations under the Americans with Disabilities Act (ADA). There are many conditions covered under the ADA that can increase your risk of Covid-19 complications, such as diabetes, heart disease and lung disease. It might be possible to take a leave of absence for these types of medical conditions during the pandemic. You can learn more about ADA guidelines relating to the COVID-19 pandemic here. 
2. Create a plan to pay for health insurance.
   Most people rely on their employers for health insurance before switching to Medicare at age 65. If you were (or will be) laid off before the age of 65, you may need to pay out of pocket for a private plan. If you previously received health insurance through your employer, you should be able to buy COBRA continuation coverage for 18 months after termination at your former employer's group rate, though you'll be responsible for paying the entire premium yourself. You may also be eligible for assistance through the Affordable Care Act, which you can explore in more detail at healthcare.gov.
3. Consider a temporary retirement.
   Your retirement doesn't have to be permanent. The job market is the worst it's been since the Great Depression, so it's understandable if you don't have the energy or resources to throw yourself into the job hunt right now.
   
   If you aren't financially or mentally ready to retire, you can take a few months to recharge your batteries and think about what you'd like to do next. In the meantime, consider taking a class or two to brush up on existing skills—or learn some new ones. You might also devote some of your free time to volunteer work. Staying active and engaged until you return to the workforce will help you feel better about your situation and may open up some new opportunities.