As all 50 states begin to reopen during COVID-19, millions of people in the workforce face a new dilemma. Are they ready to return to work, balancing their finances and their health? If you’re able to work from home then your decision is easy, but not everyone is as fortunate. Before deciding whether to head back to the office, take early retirement, or resign, consider the following key factors to assess your physical and financial health.
Your Physical Health
If you’re over age 60, medically compromised or living with someone who is older or at-risk, your decision about returning to work is more complicated given health concerns during COVID-19. While we fully understand the importance of earning a living and saving for retirement, health considerations and potential for exposure should be carefully evaluated. Assess the risks not only in your work environment, but also in your commute as well, especially if you use public transportation.
Your Financial Position
Taking a close look at your finances relative to health risks is critically important during COVID-19. If you’re living paycheck to paycheck or have very little savings, then securing current income might be paramount to sustain your needs. However, if you have accumulated savings, you might have the luxury of having options. Ask yourself the following:
- Could your savings cover your income needs for at least three years (giving time for a vaccine and an economic recovery)?
- Will you be employable in the future post an employment gap, and at what pay level if you’ve been out of the workforce or in a different field?
- Are you willing to work more years toward your retirement goals for the protection of your current health?
Make the Case to Work from Home
If you’ve been working from home, or feel that working from home is a viable option for continuing your employment, then make the case to your employer. You might consider asking to work from home on a trial basis to have adequate time to prove that it can work. Many employers are realizing that working from home is more productive and successful than they ever imagined, but not all employers share the same view. If your employer is requesting your physical presence, consider:
- Can you perform your material work functions from home?
- Have you already been performing your work functions on a remote basis during the beginning of COVID-19?
- Are you willing to invest in technology to make a work from home status conducive to your employer?
- How can you address work requirements, showing accountability to your employer?
- If you manage others, how can you modify your management practices to perform on a remote basis?
- Might you be willing to consider a pay cut in return for a work from home status?
- If your employer is resistant, could you reach a middle ground of working from home a few days a week?
Will You Be Employable Post an Employment Gap?
If you’re questioning your job security as a result of asking to work from home, or if you’re contemplating quitting, you need to carefully evaluate your long-term employability. Getting back into the workforce isn’t impossible, but it can be challenging. Too many people have experienced difficulties after employment gaps for various reasons such as loss of employment, taking time off to raise children, etc. It’s important to ask yourself a few critical questions:
- What’s the likelihood that your skill requirements will change by the time you’ll be able to reobtain employment?
- Might your field of work be altered due to inevitable social, business and government changes resulting from COVID-19 (both short- and long-term)?
- How might employers view a gap on your resume?
- Does your experience allow you to pursue employment opportunities across a variety of fields, or might your options be limited?
- Would you be willing to pursue new education or training if needed to obtain employment?
- Would you be willing to earn less if you needed to shift careers, possibly having to start at a lower level?
- Might you face age discrimination?
Unemployment and Loss of Benefits
If you have a job and electively choose to quit, you must realize that you will not be entitled to unemployment benefits. Unemployment benefits are only for involuntary terminations (i.e., you’re furloughed or laid off). Hence, if you voluntarily quit for health concerns, you should be aware that you will not be eligible for unemployment benefits.
In addition to losing your income, you need to carefully consider the impacts of:
- Losing your health insurance, and the cost to replace it.
- Foregone retirement savings (your savings and any employer matching contributions).
- Forfeiting unvested retirement plan balances and/or company stock.
- Losing or receiving lower pension benefits.
- Lost earnings that could reduce future Social Security benefits.
If you’re close to retirement age, perhaps this is a time to re-evaluate your retirement priorities relative to your health and the risks of returning to work. Retiring early might require you to adjust your retirement goals and spending expectations. However, it could also be the best move to ensure you live to enjoy a long and healthy retirement.
Another option shy of fully retiring is to taper into retirement. Many people prefer a staged approach to retirement by first moving to a part-time work status. This affords continued work involvement, partial income, and possibly some benefits, while reducing your stress, work, and potential health risks during COVID-19 (particularly if you’re able to negotiate part-time working from home). If you’re thinking about shifting to part-time prior to retirement, ask yourself:
- Can you afford to work part-time, now and relative to your retirement needs?
- Will you lose any benefits, such as health insurance?
- Might your pension benefits be reduced by working part-time, particularly if they’re based upon your final pay?
Social Security benefits could weigh heavily on your decision making, whether you’re thinking of a full or partial retirement. Your Social Security benefits are based upon the average of your highest 35 years of earnings, as well as the age at which you begin receiving benefits. Social Security benefits are available as early as age 62, but on a reduced benefit level as compared to waiting until your full retirement age, or until the maximum age of 70.
Taking Social Security now might bridge a financial gap, but you must be comfortable knowing you could be forfeiting higher future benefits that you might need to sustain retirement in your elder years. Additionally, all benefits received prior to attaining your full retirement age are subject to earnings limitations.
Can You Adjust Your Budget?
If you’re considering reduced earnings by virtue of taking time off, shifting to part-time or retiring early, you might need to review your budget. If less money is coming in, are you prepared to spend less? Take a careful look at your spending, evaluating wants versus needs and your true ability to pull in the reigns.
How to Make a Decision?
SageVest Wealth Management helps our clients to evaluate financial planning projections that encompass “what if” scenarios. While we never modeled a global pandemic in prior retirement planning, we’ve always had the capabilities to explore the impacts of different income levels, periods of no earnings, early retirement, etc. Understanding your financial security in varying “what if” life outcomes helps you to understand what options you can, can’t or might be able to pursue.
Please feel free to contact us to update your planning projections or to discuss new planning explorations. We’re here to help.