Due to the COVID-19 pandemic, there are many reasons why people may consider retiring sooner than they planned. This could mean claiming your Social Security or pension benefits or tapping into savings earlier than planned.
Below are some things to consider to help you understand and weigh your options when considering an unexpected retirement.
Collecting your pension
If you have an employer-provided pension, and a choice between a monthly payment or lump-sum payout, it’s important to think carefully about the tradeoffs of your options and to always ensure that your payout amount is properly calculated.
Weigh your payout options
While pension payments are traditionally paid out monthly, 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 a number of 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 Missing commissions, overtime or bonuses, and outdated personal information are among common errors that could impact the total pension amount . As a result, it’s important to review your pension plan and to 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
If you have access to an employer-provided and tax-deferred retirement plan, like a 401(k) or a traditional Individual Retirement Account (IRA), 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 result in having to pay taxes because this money is considered 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 to consider all assets that can be converted to cash. A Home Equity Conversion Mortgage option can create hundreds of thousands of dollars of cash that can be factored into one’s pension planning. This could include taking a pension option with a higher survivor benefit that 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 in your retirement planning before you retire, make an appointment on our website or call us today to schedule a time to chat.
Marc has 36 years in financial services and 6 years in teaching.
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