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If You Plan To Retire in the Next 5 Years, Should You Just Do It Now?

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The question of retirement typically plays out over the long term. Most people have the chance to plan for years, gradually building resources and exploring possibilities before they set a target date for retirement. No matter how much you plan, however, life can throw you a curveball — like the sudden outbreak of a pandemic that results in an unprecedented economic shutdown.

For some, this has raised another question: If you’re already close to retirement, should you just accelerate your timeline? It’s a relevant consideration, given that there’s no concrete answer as to how and when the U.S. economy will open back up fully.

And here’s something else to consider: As the pandemic rages on, companies are looking for ways to cut costs. Many are offering employees the option to retire early — some are even extending those offers to employees under 50. But is retiring now a good idea?

Before you move up your retirement in the wake of this crisis, there are certain questions you should ask yourself.

Last updated: November 17, 2020

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Are You Working Now?

This is perhaps the most crucial question. With the number of new unemployment claims soaring at virtually unprecedented rates, it’s no secret that a lot of people are out of work. As of April 16, a shocking 22 million Americans had filed unemployment claims in just the previous four weeks.

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Why It Matters

Simply put, if you’re one of the people who has been laid off, that puts you in a different situation. If you were five years away from retirement, the process of finding another job you might hold for only a few years could be a bit daunting.

If you’re still working, it’s a lot easier to stick to your original plan. But if you’ve just gotten a pink slip in the sort of career where positions are few and far between, you might take the sudden change as a good reason to reconsider your plans.

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Will You Be Working in the Future?

Another crucial question to ask: What are your career prospects in your field? Once again, it’s not an easy one to answer immediately. Few, if any, industries have clear futures right now, so you might not have a sense of how hard finding new work would be.

Consider how much impact social distancing will have on your industry. Then look at how many open positions there traditionally have been. This should give you a better feel for how difficult it could be to land another job.

Related: The 20 Industries That Will Never Be the Same After the Coronavirus

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Why It Matters

If it took you years to find your current job, that’s something to consider before leaving prematurely. Likewise, if you work in an industry that’s already contracting as times change, you might be on the verge of a forced retirement anyway.

Whether you’re freshly laid off or confident that you’ll be able to leave on your own terms, taking the time to understand what sort of work is available is an important step in the process.

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Are You Working From Home?

The ability to work remotely used to be a nice perk. Today, it’s become a lifeline for some businesses to stay in operation. But not every industry can offer the possibility of remote work. Some businesses have had to insist that their employees come in while others have had no choice but to shutter indefinitely.

For someone trying to figure out whether now is the time to retire, which side of the work-from-home fence you landed on is all the more important.

See: 26 Highest-Paying Jobs That Let You Work From Home

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Why It Matters

Clearly, the short-term health of your industry depends on how much work can be done remotely. If you’re fortunate enough that you can do your job from home, you might not want to give that up so quickly.

But there’s an even more important element at play here, too: your health. Given that most people within five years of retirement are in their late 50s or early 60s, you’re in a high-risk group that’s more likely to experience potentially deadly COVID-19 complications, and limiting social contact should be at a premium.

If you’re doing work that puts you around people, moving your retirement plans up a few years could be a prudent decision, even if it’s a bit tougher for you financially.

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Is Your Company Making Cutbacks?

There’s no easy way of knowing if your company is heading toward cutbacks, but some people working at small businesses might have a good reason to accelerate retirement to help out their employer. With budgets crunched in ways that could have never been anticipated, plenty of companies are in the process of making some very difficult calculations about what they can and can’t afford.

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Why It Matters

If your company is in the process of cutting back resources — and your retirement might help keep the business afloat or save a younger coworker’s job — that could play into your decision. Certainly don’t make any assumptions, but if you have the sort of relationship with your boss that allows for an open and honest conversation about this, consider asking about plans for dealing with the crisis and whether your decision to retire could ease the pinch.

Don’t feel pressure to retire before you’re ready, though.

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Do You Have Other Sources of Income?

One of the major reasons that people work so hard to prepare for retirement is because deciding to forgo a stable income is a major step. When you don’t have a paycheck, all of your expenses come from your savings and investments.

Consider: How To Protect Your Retirement Savings During the Coronavirus Scare

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Why It Matters

The coronavirus pandemic has thrown a wrench into some income streams. Plenty of pending retirees might have investments in rental properties — with tenants no longer able to pay rent in the face of a sudden and unexpected loss of employment. Or, stock dividends might not be nearly as stable as they were when the investment was made. As such, if you have alternate income streams, you should take time to examine how consistent they might be in the coming months.

If you do have a steady source of income, early retirement wouldn’t necessarily require tapping into your 401(k) when markets are down. So, if you’re confident your other income streams are somewhat reliable, you might be in a better position to shave a few years off of your career.

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Can You Cut Back on Spending?

Of course, the money flowing in is just one half of the equation in retirement. Money flowing out also deserves just as much attention. You should already have a projection on what you expect to spend weekly, monthly and annually in retirement — if not, start working it out. Take a look at those projections and ask yourself what you can cut.

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Why It Matters

Clearly, your retirement is a time to enjoy, but if losing some minor luxuries makes retirement financially possible, it’s time to reconsider your spending. Take some time to make a few different budgets at different spending levels to see what the end results look like. If reducing spending is an option you can live with, you’ll have some flexibility to change your plans.

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Do You Have Debt?

Debt is essentially investing in reverse, and getting yourself out from under any major financial liabilities prior to ending your career should always be a goal — whether you’re retiring soon or not.

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Why It Matters

Some types of debt are less of a concern. A mortgage with a fixed (and low) interest rate will have structured, predictable costs that you can plan around. But if you’re still sweeping away credit card debt or other high-interest loans, that can significantly hinder your long-term plans.

Pushing up your retirement while you still owe money may prove problematic. Make sure you have a clear plan for how you’ll pay off debt while sustaining your lifestyle.

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What Are Your Retirement Plans?

Another big question is what exactly you plan to do with your retirement. You’ve been saving your whole life for this moment.It’s worth knowing that your nest egg won’t just sustain you but also bring you real happiness in your golden years.

Check Out: 16 Real People Affected By the Coronavirus Give Their Best Financial Advice

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Why It Matters

If all you really want from your retirement is time to enjoy life with family and friends, that will potentially require a lot less in savings. Likewise, if you’re planning on having a second career, you don’t need to be as concerned about building a large enough 401(k) since you’ll still have an income.

If you want to open that bed and breakfast or start another small business or if you had thoughts about philanthropy or traveling the world, however,  giving up the last few years of income before you retire might seriously impact those plans.

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Do You Already Own Your Retirement Home?

Having a place already lined up and paid for should be something you seriously consider prior to making any decisions about your retirement. This is even more relevant now as the economic slowdown caused by the pandemic has made the future of the housing market uncertain.

Sure, it’s possible that low interest rates will persist and people with liquid assets will be able to take advantage of a buyer’s market. But rolling the dice on that would be a big risk to take.

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Why It Matters

If you already own your home, you can always wait and see what the market looks like in a year or two. If you’re renting or in an uncertain living situation, delaying your retirement for a few more years may prove to be the smarter decision.

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How Old Are You?

This is one situation where it’s impolite not to ask your age. That’s because the size of your Social Security checks depends on how old you are when you begin drawing them.

While losing a few more years of income from your job is one consideration to moving up your retirement date, the long-term and permanent reduction in your Social Security benefits should also be weighed.

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Why It Matters

You can begin drawing on your Social Security as early as age 62, but doing so means only getting 70% of the monthly payment you would receive if you waited until full retirement age.

If choosing to retire now means getting a significantly smaller Social Security benefit, you’ll have to live with that decision for quite a while. So, be sure you’ve considered how it will impact those monthly checks and how that could affect your finances in the long term.

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How Long Can You Survive on Your Savings?

Just because you decide to retire doesn’t mean you’ll immediately file for Social Security benefits. If you can end your career now but delay drawing on Social Security until you’ve reached your maximum benefits, that changes the equation for you. If putting off those monthly checks for a few years means having to sell off stocks, however, you could be robbing Peter to pay Paul.

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Why It Matters

This is a question that hinges not just on how much you have saved, but what kind of savings it is. If you have a lot of cash stowed away in your checking account and CDs that are maturing in the coming months and years, your assets are more liquid and you have more options.

If you can delay drawing Social Security until you’ve reached your maximum benefits without having to sell off any stocks, the consequences of moving up your retirement plans will be reduced significantly.

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How Well Did You Prepare Your Nest Egg?

You might have read about the need to shift assets in your retirement funds away from stocks and into bonds the closer you get to retirement. Well, if you’re five years or less from retirement, the past three months are exactly why that particular piece of advice is so universally acknowledged.

Stock markets are predictable when your time frame is long enough — at least 10 years or so — but they’re also wildly unpredictable over any single 10-year stretch. If you can wait out the periodic crashes and avoid selling stocks, you’re in a good position. If too much of your money is tied up in stocks, the need for cash to cover expenses could result in selling at prices well below true value.

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Why It Matters

If you followed the classic advice by shifting your money into bonds and other stable assets ahead of time, you’re probably in decent shape right now. You can focus on selling off other assets while you wait for stock markets to recover, and you’ll have those assets to draw on later in retirement when they’re back to whole.

If not, the income from your job will be a lot more important over the next five years if for no other reason than it can prevent you from having to sell stocks. As such, moving up your retirement will be much more difficult if you failed to prepare your portfolio.

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Do You Have Enough Bonds?

One basic aspect of the dynamics of the financial markets is that, as often as not, bonds increase in value when stocks are falling. So, while now is the worst time to be selling stocks and buying bonds, it’s one of the best times to be selling bonds.

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Why It Matters

Generally speaking, selling bonds before maturity injects a lot more risk into owning them. What’s more, markets could be due for another major plunge — or two — that will make you wish you had held onto your bond assets.

If you own enough bonds and are comfortable with selling them ahead of maturity, this can allow you to retire a few years early. It also prevents you from selling stocks and, subsequently, hurting your nest egg. Keep in mind that you’ll probably want to start getting your stock/bond mix back to normal when the markets calm.

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Can You Afford To Buy Stocks?

Granted, trying to time the market is not, generally speaking, a good idea. But people within five years of retirement and on solid financial footing could consider taking advantage of down markets to make up for lost income from early retirement.

Clearly, buying stocks now is risky — there’s no guarantee that markets aren’t in for another major drop as the crisis continues to unfold. But, the truth is that down markets present an opportunity to buy cheap stocks that could pay off later on.

Look: 50 Stocks That Have Suffered the Biggest Losses During the Coronavirus Scare

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Why It Matters

The long-term view of the stock market is a bit more consistent than the picture you get by focusing on just the past six months. The S&P 500 might swing up and down wildly, but it averages out to an annual return of about 10% a year over its history. Even after a crash as big as the 2008 financial crisis, the losses were recovered over the next five years.

If you have plenty of stable assets and cash on hand, you might take the down market as a chance to make some extra stock investments that you can draw on later in retirement.

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Your Retirement Is Just That — Yours

Only you and your financial advisor really know whether your finances are ready for retirement. And only you really know if you’re ready for your career to end.

So, take the time to review the above questions and see what they tell you about your situation. But ultimately, you matter more than your finances. Consider your nest egg, but also discuss the decision with your loved ones.

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