Apr 24, 2020 4 min read

Some people who have lost their jobs due to the pandemic may consider starting Social Security or beginning an early retirement. It is important not to allow a short-term situation to create a long- term problem.

Let’s look at the early-retirement option first. All retirement planning has to start with income planning. How much do you need every month and where is the income coming from?

We are seeing two major financial problems in the news every day. Many people have too much debt and not enough emergency money.

For decades, financial planners have been saying you should have six months of emergency funds. When we see long lines at food pantries, many people cannot afford to buy food after only about one month of unemployment. You do not want to retire without sufficient emergency money.

Even though you will not lose your job when retired, things happen like auto repairs, a broken furnace or the need for a new roof. You have to be prepared.

Many people are too far in debt. Many seniors still have a mortgage, car payments and credit card debt. You want to have a plan to eliminate debt as you approach retirement. This makes income planning much more doable. The main reason couples in their earlier 60s cannot afford to retire is health insurance cost. If you are not 65 and able to qualify for Medicare, this can be very expensive.

Baby Boomers are the first generation in a long time where many people do not receive a defined benefits pension. Unless you work for a government agency or a very large company, you probably will not receive one. This means many retirements will be only a combination of Social Security and personal savings from a 401(k) or IRA. Many have not saved enough and those who did often took a lot of risk in the stock market. Many balances recently went down 30 percent.

While there never is a good time for a market crash, there definitely is a worst time. That is right before or early into retirement. This is known as sequential risk. When you need to start pulling money out of a retirement account with the market down, you will not have an opportunity to earn all of your losses back when the market recovers. Your plan must include some volatility buffering.

Let’s talk about SS. Full retirement age for anyone starting SS is 66, if you were born before 1954. It is 67 for people born after 1960, and every year in between these dates increases by two months per year.

Every year you begin benefits before full retirement age, you get about 6 percent less, which lasts for the rest of your life. Also, if you start benefits before FRA, you are subject to an earnings test. In 2020, for every $2 you earn over $18,240, you must pay one dollar back to SS. These are earned dollars from working and not money from pensions, investments or 401(k)s. Starting benefits early can cost you and your spouse’s tens of thousands of dollars over your lifetimes.

Times are difficult right now for most people. We have never experienced anything quite like this. We will come out of this over the next few months.

Make sure you consider the 10 to 20 years that many people enjoy retirement when you are making decisions today. When we return to a new normal, why not create a plan to put your family in a much better financial position?

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.