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COVID Drives Retirements, But It's Not Best Time For Everyone

Phillip Taylor (ptmoney.com)
Flickr / CC-by 2.0

Retirements have accelerated in the last year, as the pandemic closes businesses, cuts hours and puts workers at risk of contracting the novel coronavirus.

Millions of Baby Boomers leave the workforce each year. The financial toll of the pandemic is nudging many more out the door.

On average, about 2 million people retire annually. The Pew Research Center reports this year the figure is already more than 3.2 million.

Mike Seeborg is an economics professor at Illinois Wesleyan University. He said that's a major reversal in the prior trend of delaying retirement.

“The Baby Boom generation has not been a great generation of savers over the years," he said. "Quite a large percentage of folks at or near retirement age find themselves with low savings or no savings at all. And then having to rely on pensions, and mostly on Social Security income. That discourages earlier retirements."

He noted Social Security payments increase at a rate of about 8% per year until age 70. That's an incentive for people to work beyond traditional retirement age. Plus, Medicare eligibility doesn't kick in until 65. That means those who retire younger are on the hook for insurance for themselves and potentially a younger spouse.

Seeborg said from an investment perspective, now's not a great time to retire for most people. But 'he said people have to weigh other factors like job loss and health risk--and they don't control many of those factors.

Seeborg himself just retired, adding the COVID-19 pandemic was not a factor in his decision.

But the coronavirus was a factor in Illinois State University Professor Larry Dietz's recent retirement decision. Dietz told WGLT that reflecting on lessons from the pandemic contributed to him stepping down next summer.

"I've learned about perhaps being more grateful. I'm very grateful now particularly for my health and that of my family, friends and collegues and grateful for the freedoms that are being a little restricted now because of the pandemic," Dietz said in an interview last month.

Those lessons, coupled with a half-century career in education, drove Dietz's move to step down in June 2021.

Others are turning to professionals to evaluate their options. Suzanne Kosik is a financial adviser with Edward Jones in Bloomington.

"We definitely have had a lot more client engagement this year, as well as prospective clients reaching out," Kosik said. "People who are approaching retirement and have these decisions to make--do I stay working? Do I retire? Putting those pieces together and then figuring out, 'Do I have the money to be able to do that?'"

Kosik said some employees are furloughed. Others have been permanently laid off. Others still are just scared to go to work, for fear of putting themselves or their families at risk.

She said those within a couple years of retirement age usually are looking at how much they've saved, their spending habits, and adjusting their investment strategy to match their goals and risk tolerance.

But those that are further away from retirement--five or 10 years--have more significant financial questions to weigh, including the tax implications of withdrawing retirement savings early.

Seeborg said a better option may be to take some time away from work, with the intention of returning before retirement.

“I think it's better to, if you experience a job loss and you're getting near retirement age, really sit back and think about whether you're financially ready for that yet or emotionally ready," Seeborg said. "For many of us, it might be better to just take a sabbatical … and then consider reentering the workforce again, and retire at a more sensible age financially.”

He said that also applies to people who are laid off.

Seeborg said employers, on the other hand, can benefit from early retirements.

"A lot of senior workers are jumping at the opportunity, as well, to take a buyout or maybe phased retirement possibility, as employers try to reduce reduce labor costs," said Seeborg, adding, "Older workers are more costly than younger workers."

Still, Seeborg cautioned against a hasty decision because of emotion or job loss tied to the pandemic. As with any big life change, he said people should think it through.

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Dana Vollmer is a reporter with WGLT. Dana previously covered the state Capitol for NPR Illinois and Peoria for WCBU.