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Earlier-Than-Planned Retirements

From Lee Sherbakoff,

The Nalls Sherbakoff Group, LLC

Dear friends,

Last week another 1.2 million individuals submitted an initial claim for unemployment insurance benefits.  That put over 16 million people out of work and collecting unemployment insurance. Clearly, the arrival of COVID-19 resulted in dramatic changes in the U.S. labor markets with initial claims skyrocketing and a lowering of the labor-force participation rate.

A key reason the labor force participation rate fell was a wave of earlier-than-planned retirements. This means many Americans are now not actively looking for work because of a recent retirement. Further, this increase is more than twice as large among women as among men.

With the high sensitivity of seniors to the COVID-19 virus, this may reflect in part a decision to either leave employment earlier than planned due to higher risks of working or a choice to not look for new employment and retire after losing their work in the crisis.

In a recent study, investigators found that the crisis has shifted the number of retirees in each age cohort.  Thus, a larger fraction of the survey age population now claim being retired, and even for those that are well before retirement age, there is a large increase in early retirements. Moreover, a notable jump in the difference occurs at age 66, which is the first year people can claim retirement benefits without reductions in their social security benefit.

Daunting Challenges

Few decisions will impact your financial plan as much as when and how you will retire.

  • Every additional year of work past age 62 produces income that can facilitate a delayed filing for Social Security. Even working beyond age 66 may increase your social security benefit as all years and working income is part of your social security record for calculating your benefit. Each of those years can translate to more saving and investing—and fewer years living on savings. In addition, you may also receive more years of employer-subsidized health insurance and perhaps lower lifetime health care expenses.
  • Most people think of age 65 as the traditional point for hanging it up, but actual retirement ages are all over the map.  Recent Social Security data shows that 35% of the people who claimed benefits were 62; 25% were full retirement age (66); just 13% claimed at age 67 or later. More affluent people—who are less likely to work in physically demanding occupations—are more likely to work past age 67.
  • But whether you’ll be able to pull that off is another matter entirely. Even before the pandemic, numerous research studies found that roughly half of workers retired earlier than planned due to ill health, family responsibilities, or job loss. It will only become more challenging as you think about career, family, and changing work conditions as COVID plays out. The retirement calculus for many of us will change, though we may not even realize it.

We understand there is uncertainty facing all of us, especially as you are leaning into retirement. If you have questions or concerns, let’s have a conversation. That’s what we’re here for.


The Nalls Sherbakoff Group, LLC

DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.