Due to the COVID-19 pandemic, there are many reasons why people may consider retiring sooner than they planned. Retiring could mean claiming your Social Security or pension benefits or tapping into savings earlier than planned. We will continue navigating an early and unexpected retirement during COVID-19 part 2 of 3.
Below are some things to consider to help you understand and weigh your options when considering an unexpected retirement.
Collecting your pension
While having an employer-provided pension and a choice between a monthly payment or lump-sum payout, it’s essential to think carefully about the tradeoffs of your options and continue to ensure that your payout amount is appropriately calculated.
Weigh your payout options
While pension payments are traditionally monthly payments, employers are also increasingly offering payments in one lump sum. While this option may provide more flexibility, it also shifts the responsibility to you to manage and protect the entirety of your retirement money.
Choosing a monthly payment can offer steady and protected income. However, if you’re considering a lump sum payment, consider several important questions around whether you’re at risk of outliving your money or losing or reducing your benefit due to risky investments or fraud.
Detecting calculation errors
Errors can occur when pension administrators calculate your payout amount. Missing commissions, overtime or bonuses, and outdated personal information are common errors that could impact the total pension amount. As a result, it’s important to review your pension plan and work with your administrator if there’s incorrect information in your employment record.
If you have questions or concerns about your pension, federally-funded and certified pension counselors can provide free advice.
Withdrawing from your 401(k)s and IRAs
Suppose you have access to employer-provided and tax-deferred retirement plans, like a 401(k) or a traditional Individual Retirement Account (IRA). In that case, you may be considering a withdrawal from these accounts to supplement your income.
In general, you can begin withdrawing money from your plan, without penalty, after the age of 59½. However, any withdrawals before this will have to pay taxes because IRS considers this money to be income. Your withdrawals could also place you in a higher income tax bracket and may affect your eligibility for other benefits and tax credits.
Utilizing Home Equity for Retirement Planning
Many retirees who own residential real estate have an option to liquify some of their equity to better balance how they take their pensions. Part of planning is considering all assets that can be converted to cash. Factoring into one’s pension planning, a Home Equity Conversion Mortgage option can create hundreds of thousands of dollars of cash. This solution could include taking a pension option with a higher survivor benefit. Which might not be normally feasible because it lowers the monthly payment. In some cases, the money available can even be in the millions and can also be obtained on investment
If you or your trusted advisor would like to see how this program might help your retirement planning before you retire, make an appointment on our website or call us today to schedule a time to chat.