Number of Americans aged 55 and over applying earlier than they expected for Social Security due to the pandemic
Millions of workers are retiring early. But not necessarily because they want to. The pandemic is pushing them to bow out of a job, according to the Census Bureau.
3.1 million Americans aged 55 and over say they’ve applied for Social Security earlier than they were expecting due to COVID-19, according to a Household Pulse survey conducted last month. Of that group, 1.8 million are 55 to 64 years old, meaning they’re too young to receive full retirement benefits from the government-run program.
Retiring early can pose difficult household budget questions. For example, deciding to take Social Security before full-retirement age means a lower monthly check for the rest of a person’s life and would affect a spouse’s benefit should they become a widower. (See our Big Number report on poverty risk for widows.) It also cuts short the time spent saving, investing and reaping compounded returns that are needed to fund retirements that are becoming longer.
Someone considering early retirement should be aware that there’s a reasonably good chance they could live for 35 more years. The Society of Actuaries’ Longevity Illustrator calculates that men and women currently aged 55 – retired, in excellent health and non-smokers – have a 43% and a 53% probability, respectively, of reaching age 90.
Outliving your money – or longevity risk – is something Horizon Investments views as one of the greatest dangers for people in the distribution phase of their investment journey. And that’s especially true for someone who’s retiring early.
To solve for longevity risk, our goals-based financial planning research shows a broad exposure to equities is needed to keep up with a rising, inflation-adjusted cost of living. However, with more stock market exposure comes the possibility of a drop in value. Therefore, we believe a portfolio needs to protect against that with a built-in shock absorber.
Horizon believes the design of its Real Spend® product meets those needs and could help people prematurely leaving the workforce to achieve their financial planning goals.
For example, early retirees who want to delay taking Social Security can start with a higher Real Spend® distribution rate that is designed to serve, initially, as a primary source of income. And then, when government benefits begin, they can switch to a Real Spend® portfolio with a lower payout rate for supplemental income, while also seeking to grow their investment nest egg so it lasts for decades to come.
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Originally published by Horizon Investments
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, please reach out to Chief Investment Officer Scott Ladner at 704-919-3602 or email@example.com.
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