What to Do When the Pandemic Forces an Early Retirement

What to Do When the Pandemic Forces an Early Retirement

 

 

Because of the pandemic, many companies are trying to rapidly reduce their workforces. Boeing recently offered their voluntary layoff (VLO) to encourage employees near retirement to do so. Other companies will resort to traditional layoffs.

What should you do when you find yourself unexpectedly retired—whether voluntarily or not?

 

Assess the Situation—Review Your Numbers

Retirement is a major life change for everyone—even more so when it happens unexpectedly. The first step financially is to get a clear picture of your assets. This includes investment accounts and savings. It also includes debts like credit cards and mortgages. In addition, you’ll want to identify current or future sources of income such as pensions or Social Security.

Next, you’ll want to be clear about how much you’re spending. Free or low-cost tools like mint or YNAB can help you easily track how much you’re spending as well as categorize your expenses. That may make it easier to see if there are ways to reduce costs, if needed.

Knowing your minimum monthly costs is a major part of determining if you have the resources to retire successfully or if you need to find another way to work and earn money before retirement.

 

Identify Adjustments

If you’re unexpectedly retired, identify if you need to reduce your expenses. Some of those reductions may happen automatically—most families aren’t spending as much on travel right now—while other reductions may require more planning.

You’ll want to account for healthcare costs. For some, employers may continue to provide health coverage until Medicare begins at age 65. For others, health insurance will have to be purchased either through COBRA to maintain the current health insurance or through the individual markets. These policies can cost significantly more than when the employee was working, although by carefully structuring income, it may be possible to get subsidies to reduce this cost.

Identify if you need additional sources of income. This may come from part-time employment. It may also come from reviewing your Social Security strategy. Social Security benefits can begin as early as age 62, although doing so will permanently reduce your benefit. Take time to compare the tradeoffs of starting your Social Security benefit at different ages.

Finally, review your investment allocation. You’ll want to make sure you have an appropriate percentage providing stability (cash, CDs, short-term bonds) to protect you from the fluctuation of the market when you need the money. With a retirement period of 30 years or more, stocks will likely be an important part of your investment strategy, too.

 

Do Some Tax Planning

It’s important to identify what mix of accounts you have. IRA, Roth, and taxable accounts are all taxed differently. It’s often best to spend from the taxable account first, then the IRA, and save Roth accounts for last, although there may be times where it’s better to use a mix from different types of accounts each year.

Many early retirees temporarily find themselves in a lower tax bracket because they don’t have a salary and they haven’t yet started Social Security. This may be a time to take advantage of Roth conversions. Moving money from a traditional retirement account to a Roth account now, while you’re in a lower tax bracket, can significantly reduce taxes over your lifetime.

 

Planning Beyond Money

When a major change like this occurs, it’s important to take care of your finances. It’s also important to take care of your mental health. Retirees often have years to plan for this major life change. Because of the pandemic, many are making this change suddenly and unexpectedly.

It’s essential to take the time to set a new routine and identify new hobbies or other activities to incorporate into your life.

 

Conclusion

When retirement is unexpected, it doesn’t have to be scary. Building a financial plan to determine if you’re on track to meeting your goals, to discern what adjustments should be made to help you reach those goals, then to execute that plan can help provide the peace of mind brought about by a successful retirement—even when it comes sooner than expected. If you want help with this process, reach out to us

  

Should I Take the Boeing Voluntary Layoff (VLO)

Should I Take the Boeing Voluntary Layoff (VLO)

 

 

On April 20, Boeing announced a Voluntary Layoff (VLO) program in response to recent economic events. For employees who qualify, this benefit may be an opportunity to meet the goal of retirement sooner than expected. Are you wondering if you should take advantage of this program?

At Merriman, we’ve been helping Boeing employees navigate decisions like this for over 30 years. Here are the main points you should consider:

 

Benefits

For eligible employees, Boeing is offering a lump-sum payment of one week’s pay for every year of service completed, up to a maximum of 26 years in most cases.

Employees who accept the VLO offer may also receive a few months of subsidized health insurance benefits and access to other benefits.

While employees who accept the VLO may apply in the future for open employee or contractor positions, accepting the VLO forfeits any first consideration rehire or recall rights. This program is used as a permanent separation from Boeing, causing the employee to lose those rehire benefits.

 

Important Dates

Boeing has announced the following important dates for this VLO offer:

April 27, 2020                    VLO Registration Opens

May 4, 2020                       VLO Registration Closes

May 14, 2020                     Formal Notification Sent to Employees

June 5, 2020                       Last Day on Payroll

 

Am I in a position to retire?

Many people may be considering the VLO offer but are unclear what retiring now would mean for their future lifestyle. This is a major decision to make in a short amount of time, and there are many factors to consider. What retirement lifestyle are you dreaming of? Are the assets you have saved enough? Will you have other income sources like Social Security or pension benefits? To help weigh your options, we’re offering a complimentary financial analysis for Boeing employees considering the VLO program.

 

If you’re feeling overwhelmed by assessing the pros and cons of this decision, reach out to us for your complimentary personalized analysis. We can help you determine whether retiring now would provide you with a sustainable retirement that meets your lifestyle needs.

I’m Planning to Leave Assets to Charity – How Does the SECURE Act Change That?

I’m Planning to Leave Assets to Charity – How Does the SECURE Act Change That?

 

 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019, creating significant retirement and tax reforms with the goal of making retirement savings accessible to more Americans. We wrote a blog article detailing the major changes from this piece of legislation.

Now we’re going to dive deeper into some of the questions we’ve been receiving from our clients to shed more light on topics raised by the new legislation. We have divided these questions into six major themes; charitable giving, estate planning, Roth conversions, taxes, stretching IRA distributions, and trusts as beneficiaries.  Here is our first  of six installments on charitable giving.

 

In my estate plan, I’m planning to leave some of my assets to charity. What should I be mindful of with the passage of the SECURE Act?

Perhaps the largest consideration is which assets the charitable donation should be made from. While IRAs and other traditional retirement accounts have always been a good choice, the SECURE Act increases the value of using these accounts for charitable giving.

Because charities don’t pay taxes, they are not impacted by the new compressed RMD rules.

For an individual with traditional retirement accounts, Roth accounts, and taxable assets outside a retirement account wanting to give to charity from their estate, the preference would be:

  • Traditional IRA: Make charitable donations from here. Even if only part of the account is gifted to charity, the decreased remaining balance will reduce the taxable income the beneficiary realizes each year.
  • Roth IRA: Leave these to individuals instead of charities. Even though Roth IRAs still have annual RMD, the income removed from a Roth account will not be taxable for the beneficiary.
  • Taxable Accounts: Individuals should be preferred over charities. There is no requirement to take income in a given year, and the beneficiary likely received a step-up in cost basis, minimizing the tax impact when used.

If your goal is to both leave money to charity and create an annual stream of income for a beneficiary that lasts longer than the 10-year rule for new inherited IRAs, a charitable remainder trust may accomplish these goals.

As with all new legislation, we will continue to track the changes as they unfold and notify you of any pertinent developments that may affect your financial plan. If you have further questions, please reach out to us.

 

Second Installment: How to Optimize Your Accounts After the SECURE Act

Third Installment: Must-Know Changes for Your Estate Plan After the SECURE Act

Fourth Installment: How to Circumvent the Demise of the Stretch: Strategies to Provide for Beneficiaries Beyond the 10-year Rule

Fifth Installment: The SECURE ACT: Important Estate Planning Considerations

Sixth Installment: Inheriting an IRA? New Rules to Consider

 

 

Disclosure: The material provided is current as of the date presented, and is for informational purposes only, and does not intend to address the financial objectives, situation, or specific needs of any individual investor. Any information is for illustrative purposes only, and is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances.  Investors should consult with a financial professional to discuss the appropriateness of the strategies discussed.

What is the Right 529 Plan for College Savings?

What is the Right 529 Plan for College Savings?

As the parent of two young children, college planning is certainly on my mind, even at just 3-years and 6-months-old. While there are multiple options when saving for college, I’ve created 529 plans for my kids, which provide several benefits.

This post examines 529 plans and their benefits, followed by a description of how I’ve chosen to invest my 529 accounts. (more…)