Should You Delay Retirement Because of COVID-19?

What to consider if you’re close to retirement during the pandemic

Gray-haired man at a laptop in his kitchen.

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Business shutdowns triggered by COVID-19 pushed millions out of work and thrust the stock market into a sharp downturn in the spring of 2020. As uncertainty over the pandemic stretches on, you may be rethinking your plan for retirement. 

But should you delay retirement because of COVID? We’ll look at potential benefits and risks of postponing retirement now, and discuss what different age groups should think about before deciding. 

Key Takeaways

  • More than half of Americans are more worried about retirement today than a year ago, before the global pandemic took off.
  • Nearly three-quarters of people in the U.S. are considering delaying retirement because of COVID’s economic impact.
  • A well-diversified portfolio may protect your savings through market turbulence.
  • Whether you should delay retirement depends on several factors, including your unique savings strategy and goals.

How COVID-19 Is Affecting Retirement Plans

The majority of Americans in November remained more concerned about their retirement amid the pandemic than they were a year ago, according to a study over several months in 2020 published by fintech company SimplyWise. The same report found that 74% expect to continue working after claiming Social Security benefits, an increase from about 65% in May. 

However, retirement outlooks vary across age groups during the pandemic, a survey by Voya Financial found. 

  • 49% of Millennials (ages 24 to 39) expect to continue working beyond retirement age
  • 60% of Generation X (people ages 40 to 55) said they plan to work in retirement
  • 59% of currently employed baby boomers (people ages 56 to 74) plan to postpone retirement

The Impact of Delaying Retirement

When determining whether to delay retirement, understand the advantages and disadvantages. 

  • More time gained for the market to recover

  • Added years for your savings to grow

  • A bigger payout later from delaying Social Security benefits 

  • Allows keeping your employer-sponsored health insurance, if you have it

  • Additional stress from working longer as you age

  • Less opportunity to do what you want

  • Reduced time to spend with loved ones

What to Consider Before You Decide

There are some key factors you should ponder before deciding if you want to postpone retirement.

Current Financial Situation 

If you’re one of the millions who lost a job because of COVID-19, retirement savings may not be a priority right now. Recovering your income and building emergency savings in the short term can include setting aside money for future retirement contributions, if the end of your working life is a ways off.

“Focus on protecting your current financial health,” Tara Falcone, CFP, and founder of financial education firm ReisUP, told The Balance in a phone interview. “You can keep retirement out of mind for now. But recognize that mindset is going to have to shift once you start earning a good income again.”

Time Horizon

If you’re a long way from retirement age, you likely have plenty of time for the stock market to recover from its pandemic plunge. 

“Younger generations should really not be impacted for their retirement by this pandemic much, if at all,” David Henderson, CFP at Jenkins Wealth, told The Balance in an email.

“I advise my younger clients that they should really celebrate when there are market declines during their working years if they are contributing regularly to a retirement plan. The reason is that as they make those contributions during a market decline, they are buying more shares and ultimately dollar-cost averaging their money into the market, which has been proven to be one of the most efficient ways to grow retirement wealth.” 

So by sticking to a solid long-term strategy, you probably can retire when you plan to. But this doesn’t mean older workers should panic. Instead, for them, it may be a good time to revisit their portfolios in a rational way.

Investment Strategy 

Economic downturns cause some investors to panic. Many believe they should sell their investments, move away from stocks, and stick to cash or fixed-income securities. 

Rob Austin, head of research at Alight Solutions, in an email to The Balance explained how this can backfire:

“In the first quarter [of 2020] when Wall Street was reeling, we saw record-high trading levels in the Alight 401(k) Index and these trades almost universally showed that people traded out of equities and into fixed income. 

“Since that time, we have seen many stocks recover, but we have not seen much trading activity moving money from fixed income to equities. This indicates that people locked in losses back in February and March. The lesson here is have a long-term view and try to avoid knee-jerk reactions,” Austin said.

Diversification of one’s portfolio later in your career is another important consideration for deciding whether the time is right to retire.

“You can set yourself up for success by establishing a personalized strategy that is designed to provide you with the right balance between growth and stability, regardless of economic cycle,” Paul Deer, CFP, and director of Advisory Services at Personal Capital, told The Balance in an email: 

“For near-retirees, this will generally mean keeping a diversified portfolio with a mix of stocks, bonds, and alternative investments. The better diversified you are, the better prepared you are to weather whatever the markets bring next,” Deer said. 

Social Security Benefits

According to a survey by insurer Nationwide’s Retirement Institute, nearly half, or 44%, of respondents don’t feel they have a good understanding of Social Security benefits. Here are some quick facts about them: 

  • You can begin claiming Social Security benefits at age 62
  • Your monthly payments will be larger (up to almost 30%) if you wait until full retirement age
  • Full retirement age generally is age 66 or 67, depending on your birthdate
  • You’d get your maximum benefits if you delay claiming until age 70 (they rise by about 8% annually for each year after full retirement age that you wait)

Working until age 70 may seem unreasonable. But even working just a few years into your 60s can help. 

Delaying retirement may not always be feasible. If your health won’t allow it, this isn’t the right decision. 

Health Care 

Regardless of what happens with COVID-19, health care costs are a key factor of retirement planning. If you’re still working, you can continue to benefit from any employer-sponsored health insurance plan you have. Medicare coverage generally kicks in the first day of the month you turn 65. If your birthday is on the first day of the month, your coverage starts the first day of the prior month. But it may not cover everything. You can supplement Medicare with additional insurance, but that can be pricey.

It’s important to analyze your health care needs and explore your options when thinking about retiring.

COVID Changed Retirement Plan Rules

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows qualified individuals to take coronavirus-related distributions of up to an aggregate limit of $100,000 in 2020 from their 401(k)s or IRAs without incurring the 10% early withdrawal penalty. 

While a Vanguard analysis of its retirement plan participants found only 4.5% of them took a coronavirus-related retirement plan distribution between January and September 2020, the November survey by SimplyWise reported 29% of 401(k) holders expect to withdraw money from their plans to make ends meet. The study noted this was a “pandemic high.”