The pandemic changed many people’s plans, including retirees. About a third of people who were planning to leave the workforce decided to hold onto their jobs in light of COVID-19.
Considering that the stock market crashed as a result of the coronavirus, delaying retirement in 2020 was a smart choice. But now that the economy is reopening and the stock market is recovering, it may be safer to retire.
Now May Be a Better Time to Retire Than You Think
Although the pandemic isn’t over yet and the future still feels uncertain, things are looking up.
Vaccines are being rolled out throughout the country and COVID cases are declining rapidly. The economy also appears to be on the rebound with an unemployment rate of just 6.3%.
All things considered, now may not be the worst time to pull the trigger and leave the workforce. Here are a few more reasons why you should feel optimistic about your retirement prospects.
The Stock Market is Rallying
The pandemic caused millions of Americans to lose their jobs and plunged the economy into the worst recession since 2008. However, the stock market seems to have bounced back.
The S&P 500 grew about 16.3% in 2020. Additionally, S&P 500 companies recently posted strong first quarter earnings reports, which bodes well for the economy.
Although the stock market is still volatile, experts seem optimistic. Many are calling this turnaround the fastest bear market recovery in history and expect things to continue improving. So it may not be the worst time to start drawing down your investments.
Home Prices Are Surging
Home prices have surged during the pandemic due to low interest rates, high demand, and a lack of inventory. The median home value rose by 14.9% in the fourth quarter of 2020. CNBC estimates that the average homeowner gained a whopping $26,300 in equity last year.
This hot real estate market is good news for homeowners who are nearing retirement age. If you sell your house and downsize, you could walk away with a sizable profit. This may enable you to pad your investment accounts and grow your nest egg, putting retirement more within reach.
Americans Are Spending Less
Another factor that may make it easier to retire is that you’re probably spending less. Nearly 40% of Americans reported that their spending decreased during the pandemic. Because dining out, shopping, and travel were all restricted, many people found it easier to reign in their budgets and save more money.
If you’ve learned to live on less during quarantine, you may not need as big of a nest egg to retire. This could make it possible for you to leave the workforce sooner than you thought.
How to Know If You’re Ready to Retire
Pandemic aside, there are lots of factors you’ll need to consider before you decide to exit the workforce. Here are some questions to ask yourself to determine whether or not you’re ready to retire.
Evaluate Your Assets and Sources of Income
Retirement is only possible if you have enough assets and income to fund your desired lifestyle. So first, you’ll need to calculate your monthly cash flow and see if it will cover your bills and leave you with some cushion for unexpected expenses.
Add up all of the sources of income you’ll have in retirement, like social security, pensions, side jobs, and rental income. If you plan on waiting a few years to collect social security to increase your payout, you’ll need to make sure you have enough money saved to cover that gap in income.
You’ll also need to figure out how much money you can safely withdraw from your retirement accounts. Many retirees use the 4% rule, which means you’ll withdraw 4% of your investments in the first year of retirement and adjust that amount for inflation every year thereafter.
Decide If You Have Enough Money to Live On
Once you know how much money you’ll have coming in every month, you’ll have to decide if it’s enough to live on. Financial experts say that you’ll need about 70% to 90% of your pre-retirement income to live comfortably in your golden years.
But if you have debt or other financial obligations like adult children who depend on you, that may not be enough. You might also need a larger nest egg if you have big dreams for your retirement like traveling extensively or opening a business.
If you don’t qualify for Medicare yet, don’t forget to factor in the cost of health insurance. Marketplace plans can be expensive, so make sure you have a plan to pay for it.
Many seniors will also need to move to a nursing home at some point during their retirement. Most financial planners recommend that you purchase long-term care insurance before age 65 to help cover the cost so you don’t drain your nest egg.
But if you’ve looked into it and decided insurance isn’t right for you, make sure you have some other way to cover unforeseen medical expenses like long-term care.
Planning for retirement can be difficult even when there isn’t a global pandemic. If you’re uncertain whether or not you’re financially ready to leave your job, it’s a good idea to speak to a financial planner. They can help you navigate the extra challenges that retiring during a pandemic brings.
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