Baby boom wave collides with COVID-19, forcing tough financial decisions for some

The COVID-19 era is colliding with the Baby Boom wave to create consequences that, for some people, will lessen financial security for life.

We are in the middle of the wave of Baby Boomers transitioning to retirement. Roughly 10,000 U.S. Baby Boomers reach age 65 every day.

Many people associate age 65 with their presumed retirement date. But now many in the second half of the Baby Boom wave could be faced with a premature retirement due to job loss in the COVID era.

With unprecedented unemployment over the past several months, many people closing in on retirement, but not quite ready (financially or emotionally), have their lost jobs.

A few months ago, the hope was that this would be a temporary phenomenon. As COVID extends its reach and impact on personal and economic health, it is becoming evident that some jobs thought to be furloughed or simply placed on leave, will permanently disappear. As initial crisis relief programs expire or continue in lesser form, some industries will face further staff reductions and more businesses will likely close.

Not knowing exactly if your job will return, in the same form, at the same income, or how long-lasting it will be, is difficult at any age. But if you are in your early 60s, it can be particularly troubling. It is not an ideal time to reassess career opportunities.

For this group of second-half Baby Boomers, late-career interruption might initiate a need for serious planning and re-evaluation of their current financial situation and life expectations. Before deciding whether to pursue a different job or whether you are in good enough financial shape to accept an early retirement, it is best to understand a few key considerations.

The first concern for many people is what to do about health insurance if they lose employer-provided coverage before becoming eligible for Medicare at age 65. Some people will shift to coverage provided by their spouse’s employer. For many, that won’t be an option. COBRA is an option to continue coverage but only temporarily and at a higher cost than while employed.

The Affordable Care Act insurance plans available through state exchanges can be cost-effective options if income is low enough to qualify for tax credits. But the maximum income for a tax credit in 2020 is $68,960 for joint tax filers, less for single tax filers, which leaves many people with high-cost coverage.

After the immediacy of confirming health insurance coverage, Social Security is a prominent topic to understand, particularly because decisions made now can impact lifetime income.

Social Security benefits are based on income over your 35 highest-earning years. If you are 60 and expected to be employed at or near your career peak income for another five years and you do not go back to work, the calculation to determine your Social Security income will replace what were five more expected high-income years with five earlier-in-life years of lower income. Not only will this lead to lower Social Security income, but if you decide to claim these benefits before your full retirement age (67 for people who turn 60 in 2020, 66 and 8 months for people who turn 62 in 2020), your income will be permanently reduced. If you start Social Security when first eligible at age 62, instead of full retirement age, your benefit will be reduced as much as 30 percent.

That is another spot where coordination with a spouse might be critical to make the best decision about joint finances now and in retirement.

For people who have been good savers, investment accounts might bridge the gap between early retirement and waiting for larger Social Security payments. But starting withdrawals from 401(k), IRAs or other accounts could impact the longevity of those accounts, so it’s important to understand what a sustainable withdrawal rate is in your situation. You might also need to revisit how you are invested. If you need your investment portfolio to generate more income now, rather than remaining positioned for longer-term growth and a later retirement, that might lead to a shift in the weight of stocks vs. bonds in your portfolio, among other considerations.

Of course, the aspect of your financial life where you retain more control is how much you spend. Situations like abrupt retirement might cause you to rethink your cost of living, where and how you live and how you can make your money last longer.

Amid all the financial considerations, it is important to know that retirement is more than a financial event. It is a life event. Ideally, people whose employment and income are disrupted can adapt to a new reality. Some will turn job change into a positive, pursuing a new opportunity. But this economic climate will put many people in a tough spot.

This story was originally published August 4, 2020 at 1:00 PM.