3 signs you'll have to retire early because of the coronavirus (and how to make it work)

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As a working senior in the coronavirus era, you may be facing a crossroads: Retire now and live a simpler life than you'd imagined, or struggle to keep your income intact in a very competitive job market. Here are three signs that the right decision is to streamline your lifestyle and retire soon, along with essential tips for making it work financially.

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1. You’ve already lost your job

In the eight weeks since the Great Lockdown began, more than 36 million Americans have filed for unemployment. Unless you have a large network of professional contacts and a stellar reputation in your field, finding a suitable job opportunity may be extraordinarily challenging — for anyone, let alone an older worker.

You can lean on federally enhanced unemployment compensation to buy some time, however. The coronavirus stimulus package passed in March of this year adds a $600 weekly supplement to your state's unemployment benefit. That supplement will be included in your unemployment checks until July 31, 2020.

2. You have pre-existing health conditions

Health concerns were forcing seniors into early retirement well before the coronavirus rolled into town. Today, COVID-19 adds a new complexity to how you manage your health as an older adult. If your professional expertise is in a role that can't be done remotely, you shouldn't hit the job market without weighing the health risks first.

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Have a frank discussion with your physician about the risks you'll face in the type of work you do. Retiring early with less money in the bank may be the right move if it means avoiding undue health risks.

3. Your work experience is in middle management

Even if your physician clears you to work outside the home, the type of role you held previously may disappear as a result of the pandemic. Cruise ships have stopped sailing, many countries have closed their borders to nonessential travel, and retailers and restaurants are just now beginning to reopen. Employers in the hardest-hit industries may be forced to restructure to flatter, more efficient organizational charts. And that could leave mid-level managers out in the cold.

What to do next

Retiring ahead of schedule requires some tough choices on your part. Below are two tips for how to deal with an unexpected early retirement.

Estimate your retirement income

You can't claim Social Security until age 62, but you can start taking distributions from your 401(k) or IRA without penalties after the age of 59 and a half.

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For a quick estimate on how much income is available from your savings, look to the 4% rule. The rule states that you can stretch your savings to last for 30 years by withdrawing no more than 4% to 4.5% annually. The number may be shockingly low compared to your pre-pandemic income, but don't stress out just yet. If you are already 62, or you can hang on until you reach 62, you have a Social Security benefit coming your way, too.

The trade-off for claiming Social Security as early as age 62 is a lower monthly benefit. That isn't great for your cash flow, but it's not as bad as it sounds. Your cumulative lifetime benefit should actually be the same; claiming early just gives you a longer stream of smaller payments instead of a shorter stream of larger payments. You can check your estimated monthly benefit by creating an account and logging in at my Social Security.

Trim your lifestyle

Once you have a sense of your available retirement income from savings distributions and Social Security, the hard work begins. Compare that level of income to your pre-pandemic paycheck. You won't have work-related expenses or retirement distributions to cover anymore, and that should help some. Your tax bill should go down too, particularly if your lower retirement income puts you in a lower tax bracket.

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Even so, you will have to get creative in trimming back your lifestyle. Your home, if you own it, usually offers the most opportunity, since you could raise cash and reduce expenses simultaneously by downsizing. Alternatively, you could add a new income stream by renting out a room. Other expense categories to review for efficiency are cars and transportation, utilities, food, and entertainment.

Adapt and adjust

Retiring now due to the coronavirus pandemic probably doesn't give you the retirement you had envisioned. Unfortunately, you may have no choice but to adapt and adjust to these changing times. Dig deep and you'll see a path to go forward, even it's not the one you'd planned on taking.

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