By Sheryl Rowling CPA/PFS, Principal of Rowling & Associates
Even before the pandemic, retirement was a difficult decision. However, these times especially make the considerations for retirement even more challenging. COVID-19 has brought with it changes to your financial, physical, and emotional situation. Each of these will affect your decision to retire.
If you were about to retire, you have been dealt one bad hand. The pandemic shut down our country and brought about a market downturn that could take years to recover from. Tax-wise, there is also ambiguity regarding when tax rates might change. And, the COVID bailouts are costly. Additional taxes or increases to existing taxes might be needed sooner than later. To make matters worse, interest rates are at historic lows. This is great if you are taking on new debt or refinancing existing debt like your mortgage, but for retirees, low interest rates are not good for generating a decent income stream. If you retire now, your retirement assets might be in for a bumpy ride for at least the next few years.
Most of our careers, we focus on the financial elements of preparing for retirement. We save in retirement accounts for decades and regularly monitor the portfolio to ensure we are financially on track for retirement. Hopefully, you have already done a lot of work in this area. If you need eleventh hour financial advice, connect with a fee-only financial planner to take a quantitative look at your situation. Now it is time to fine-tune the finances, avoid common pitfalls, and do your best to prepare for the unexpected. At this point, a financial planner can help you develop a clear picture of both your retirement income and your cash flow needs in retirement. They will also help you maximize your social security income, decide on any options for pensions, and plan for current or future healthcare expenses. Finally, a planner will ensure your portfolio is correctly invested to help you achieve your retirement goals, while at the same time containing the appropriate amount of risk that allows you to sleep at night during volatile times like these. The financials are only half the puzzle, though; you must also determine if you are mentally ready for retirement.
Often, much less planning for retirement is spent on the mental aspect, but it is just as important of an endeavor. To begin mentally preparing yourself, start working through the difficult questions. You might find your answers to some of these questions have been completely altered by the predicament of the pandemic. First, you need to determine why you are retiring now over your other available options. Would it make more sense to wait a few more years? Are there any alternatives to retirement that might make more sense for you, such as starting another career you’ve always wanted to pursue, or scaling back your work hours toward partial retirement? If you want to retire because of an unhappy work situation, might that be remedied by moving to a happier work environment? You will also need to evaluate what will change after retirement and how you will spend your time.
COVID-19 presents less than ideal economic, physical, and emotional conditions to make your retirement decision, but it does not mean retirement must be delayed. Work with financial professionals to help you determine if you are financially ready. Speak with your loved ones, friends and colleagues to help you evaluate if you are mentally ready. If you are both financially and mentally ready, now might be as good a time as any. Hopefully, if you do choose to retire during this pandemic, it leads you to discover a new set of interests that you may not have pursued otherwise.