The pandemic has affected everyone’s life in some way — especially when it comes to finances. Many employees faced reduced hours or layoffs as businesses shut down or closed permanently. On top of that, some people chose to opt out of working on the frontlines for health and safety reasons. All of these factors shifted the work landscape and put many older workers into forced retirement. According to the Schwartz Center for Economic Policy Analysis, a staggering 2.7 million older workers were out of the workplace as of January 2021.
The amount of workers makes up more than three times the amount projected to be out of the workforce otherwise. If you’re dealing with a forced retirement or feel pushed out because of the current situation, here are some ways to manage your finances and expenses.
If you have a pension, review your options
We know that not everyone has access to a pension these days, but if you do it’s important to review your options. If your employer does offer a pension, you may be able to choose from a fixed monthly payment or a lump sum of money.
Make sure you understand how much you qualify for and understand how each option will affect your budget and lifestyle. For example, it may be better to budget with fixed monthly payments if you’re worried about overspending.
However, a lump sum could help you pay off debt and have access to capital if you need to move or pay for large expenses. Check out your options, review the amount, and decide what is best for you.
Consider claiming Social Security benefits
Depending on your age, you may be able to claim Social Security benefits to help out during this time. However, you should proceed with caution and consider the short-term and long-term effects of doing so.
You can technically qualify for Social Security benefits starting at age 62, but waiting longer can be beneficial. The full retirement age is 67 and if you wait until age 70, your benefit amount will increase.
If you claim your Social Security benefits at age 62, your benefit amount will be 30 percent lower than at the regular retirement of age 67 and a whopping 70 percent lower than if you claim your benefits at age 70. Of course, you may not have the luxury to choose or wait any longer, but it’s important to know how claiming now or later will affect your payment amount and your finances.
Take out money from your retirement accounts
If you’re dealing with a forced retirement, then it might be time to take out money from your retirement accounts. You may have an employer-sponsored retirement plan such as a 401(k) or you may have an Individual Retirement Account, such as a Traditional IRA or Roth IRA.
If you’re older than 59 ½ there’s some good news. You can withdraw funds from your retirement accounts without any penalties. If you take out money before that time, you’ll have to pay taxes on that amount.
Be aware that taking out retirement withdrawals can boost your income on paper and lead to a higher tax bracket. That could ultimately affect your eligibility when it comes to certain benefits and credits.
Getting money from previous or other accounts
Like many people, you may have had multiple employers over your working life. That means you may have money in a previous 401(k) or an unclaimed pension. Start by contacting your former employer to see about recovering funds from your account. You can contact the human resources department to get started. If you know the administrator of the account, you can contact them as well.
You can also check out resources like the National Registry of Unclaimed Retirement Benefits as well as the Pension Benefit Guaranty Corporation. You can also check out MissingMoney.com by state.
Additionally, take an inventory of all savings accounts you may have as well as any brokerage accounts as well.
Reduce your top expenses
Being in a forced retirement situation can be tough because of unexpected income loss while still managing expenses. That’s why it’s key to reduce your top expenses. For example, you want to focus on the following to cut down on costs.
- Housing. If you still have a mortgage, you may consider refinancing or making adjustments to your repayment plan if possible. If you rent, you may consider downsizing to a more affordable space or move to a new location with a lower cost of living.
- Healthcare. Your health is important, especially as you age and of course even more so during a pandemic. Fidelity found that a couple at age 65 may need to save about $300,000 for healthcare costs. You can also use BenefitsCheckup.org to see if you qualify for any programs or discounts.
- Car insurance. Dealing with forced retirement means staying home more and commuting/driving less. That can lead to huge savings when it comes to your car insurance premium. At Metromile, low-mileage drivers could potentially save close to a thousand dollars* per year by making the switch. Making the change to pay-per-mile auto insurance means only paying for the miles you rack up driving plus a low base rate. You get charged a low base rate and pay several cents for each mile you drive.
The bottom line
Being in forced retirement due to a global pandemic or lack of opportunities can be difficult to deal with. If you’re in that situation right now, check out your financial options and start making a plan to move forward. Getting your retirement fund money and saving on expenses will be key. To see about saving money, grab a free quote for pay-per-mile insurance to see how much you could save.
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Melanie Lockert is a freelance writer, podcast host of the Mental Health and Wealth show, and author of Dear Debt. She’s a cat mom to two jazzy cats, Miles and Thelonious, an amateur boxer, music lover, and needs coffee to function.
*Average annual car insurance savings by new customers surveyed who saved with Metromile in 2018.