By Andrew Zashin*

“There’s never enough time to do all the nothing you want” – Calvin & Hobbes

For many Americans, the decision as to when to retire is one to be labored over and discussed at length. Unsurprisingly, the COVID-19 pandemic is playing an important role in that decision.

Most notably, statistics have shown that retirement-eligible Americans are opting to leave the workforce at a much higher rate than prior to the pandemic. Several theories have been proffered. One possible explanation is that the age group most adversely affected by exposure to virus coincides directly with the age of retirement, i.e. why continue to work and exposure yourself to a potentially life-threatening virus when you have the opportunity to retire? Or, perhaps, the decision isn’t exactly voluntary: have many Americans lost employment and retired as opposed to continuously look for work that simply is not available at this time.

Regardless of the reasoning, a larger-than-normal amount of people find themselves preparing to retire during one of the worst economic recessions in American history.

So what should one do or not do if they find themselves preparing to retire during the pandemic?

First, closely consider your age and the ramifications of claiming Social Security benefits. While many individuals will be eligible to receive Social Security benefits at age 62, most people are better off drawing from their other accounts and claiming your Social Security benefits at an age closer to 70. The additional time will allow for the benefit to increase in value and provide you a higher benefit than had you tapped into that financial source at the earliest possible age. The chart below shows when full Social Security benefits are available based upon ones date of birth.

Two, carefully review all financial penalties associated with drawing upon a non-government retirement account such as a 401(k) or 403(b) in advance of age 60. The general rule of thumb is that the IRS imposes a 10% penalty on the taxable portion of your retirement distribution if a distribution is taken before age 55½. There are, however, exceptions to this rule that are dependent upon your age and when you choose to leave the work force. For example, an employee who leaves the work force at age 55 or after will not incur a 10% tax penalty if they choose to draw upon their 401(k).

Lastly, it is important to consider whether it makes sense to draw down on non-retirement accounts such as mutual funds or savings accounts in lieu of opting to take an early distribution from a retirement account or filing for Social Security benefits. While income from mutual funds is taxed, for the average tax filer, this income is taxed at a lower rate than regular income. Given these consequences, it may make sense to liquidate these funds instead of taking the significant tax penalty associated with an early distribution.

In short, the decision to retire is a personal one and one that has many financial ramifications. While the COVID-19 pandemic may have caused you to consider retiring earlier than previously anticipated, it is important to review all your financial options prior to making this significant decision. As a result, it is best practice to contact a financial planner and Social Security in advance of leaving the work force in order to better understand your unique situation.

This article originally appeared as a column for the Cleveland Jewish News.