Is Your Retirement Planning Still on Track?

It’s Not Just You

The financial effects of the COVID-19 pandemic have been like few others in modern times, triggering widespread layoffs and stock market volatility of historic proportions. By fall 2020, multiple surveys indicated many people were decreasing or even stopping their retirement savings as a result. It also became more common for people to dip into their existing retirement funds to address a loss of income, and for recent retirees to return to work.

Workers nearing their retirement were among the hardest hit by these events, as individuals in this group often faced one of two scenarios: They may have experienced a job loss that caused them to consider retirement earlier than they’d planned, and at a time when their retirement savings had been negatively impacted. Or, if they were planning to retire in the near term, those plans were jeopardized by the perceived need to work longer to recoup lost savings.

Both scenarios highlight the historic nature of the current situation, as well as the need for those approaching their retirement to consider how their income and savings strategies may need to shift in the days ahead to maximize and protect their investment.

Dig into the Details

Consider these steps:

• First, examine and stabilize your existing budget. This might mean making short-term changes, such as cutting back on unnecessary monthly expenses or temporarily delaying larger purchases.

  At the same time, consider what you want from a typical day in retirement: Are you gathering at a family vacation home, enrolling in painting courses, or donating time and resources to your favorite philanthropic causes? Perhaps the pandemic has changed what you want to do in retirement. Your dream is yours alone – and no two retirements are alike.

• If you have a retirement nest egg, one useful guideline is the 3% rule, which enables you to see if your investments will be enough to sustain your retirement goals. It gives you an idea of how much you can safely withdraw without exhausting your nest egg: For example, if you have $1 million in your portfolio, you could safely use $30,000 of that per year in retirement. If that’s enough of an income for you, you could retire with $1 million today.
• On the income front, review and consider all possible options to boost your supply of short-term cash without having to dip into your retirement savings.
• If your employer has offered you an early retirement package, take the time to seriously consider the terms of the offer and the benefits you’ll forfeit if you don’t accept it. For example, be sure you understand what will happen to your 401(k) or other workplace retirement plan if you decline the offer and subsequently leave or change your job.
• Before accepting any retirement package, also be sure to review the summary plan description (SDP) of your retirement plan, along with your individual benefit statement. Why? To determine how much of your employer contribution you’re eligible to receive based on the vesting schedule. And if you roll over your retirement plan, be careful to complete the process in a way that protects your plan from being subject to withholding tax.

When Is It Time to Retire?

That’s the big question, of course. And there’s no one-size-fits-all answer.

Once you’ve evaluated all your income streams, a general rule of thumb is to estimate that every year, you’ll need between 70 and 80% of your pre-retirement income level to cover your retirement expectations, taxes and healthcare expenses. If you’re married, don’t forget to work your spouse’s earnings, retirement savings and retirement income into the equation as well.

All of these considerations will help shape and fulfill your retirement vision – whether you’re traveling the world or settling into your current home.

"To determine if you are on track to retire, calculate how long your money will last," said Nancy L. Anderson, CFP^®, Regional Planner with Key Private Bank. "Factor in your current retirement balances, savings rate and any income streams in retirement, such as Social Security and a part-time job. Savers may be better off than they realize."

Anderson continued, "Even if the numbers look favorable, talk with a financial advisor to discuss and brainstorm options." You can use KeyBank’s Retirement Planner Calculator to get started with an idea of what it will take to make that vision real.

Other factors that will impact your retirement financially include Social Security, healthcare options and alternative forms of employment. When it comes to Social Security, it may be tempting to claim it early – but the longer you hold out, the higher your monthly benefit will be.

Although Medicare eligibility begins at age 65, retirees may also find private health insurance before then through the Affordable Care Act’s federal exchanges. Finally, remember that retirement doesn’t have to be an all-or-nothing proposition: You may be able to bridge financial gaps with part-time or consultancy work.

Impacts of the Pandemic

If you had been planning for an early retirement prior to the COVID-19 crisis and have experienced losses to your retirement investments, you may be faced with the prospect of delaying those plans to recoup some losses.

You can either postpone your retirement and continue working, so that you can continue making contributions to your savings plan, or you can go ahead with your original plan to retire.

The option to continue working may not be what you had planned, but it could also preserve your ability to make retirement plan contributions. However, even with this option, think about preparing for the possibility of an unexpected job loss by increasing your retirement and emergency fund savings in the near term. This way, if you retire in the near future, negative impacts can be reduced.

If you opt to move ahead with your original retirement plan, you’ll need to consider taking many of the same actions those electing retirement are advised to take – namely, reducing your expenses, maximizing your sources of short-term income, and trying to reduce and delay retirement account withdrawals where possible.

The decision to retire can be difficult – but developing a plan can help make retirement itself easier. Connect with a KeyBank professional advisor by scheduling an appointment with one of our personal bankers, and we can help you navigate the way to the retirement that’s right for you.