Retiring Early And Securely In A Crisis-Stricken World

By Ryan Skinner

The COVID-19 pandemic is transforming our economy, the workplace and plans for the future for many people, particularly those in their late 50s and 60s. Many who expected to work longer are now contemplating retirement as changing work requirements, concerns about their health and business closures take a toll.

COVID-19 already fueled a surge in early retirements this spring. Researchers found that 60% of people who stopped working said they had retired. While many of them were over 65, nearly half were younger.

Creating a plan and evaluating income replacement options is critical if your client is considering retirement or being forced into retiring sooner than expected. Even for those clients who do not anticipate retiring in the next few years, it's a good idea to have a plan for peace of mind and financial security. You will need to evaluate ways to alleviate your client’s concerns about running out of money and tools such as annuities, which can provide a reliable income stream for life.

The Changing Complexity Of The Workplace

A year ago, no one could have imagined the shuttered businesses, worldwide death toll, shift to working and schooling from home, and other changes wrought by COVID-19. While some industries, such as travel, are not likely to recover soon, the changing nature of work has fueled retirement fervor in many industries, including health care and education.

For health care workers, the changes include serving on the virus front lines. It has added stress to an often already stressful field, particularly for those in high-risk groups. Meanwhile, other health care workers have been furloughed as elective and preventive care are postponed indefinitely. Still others have had to adapt to telehealth caregiving.

Teachers, too, have been hit hard by the pandemic. They have had to revamp their teaching techniques and embrace new technology. Teachers and their students are grappling with distractions at home, which create a stressful environment for everyone. The situation has 28% of teachers considering early retirement or a career change, and even more in school districts that have resumed in-person classes.

The movement of workers back to the workplace has brought the option of early retirement to center stage. As older workers consider their choices, they're assessing whether or not they are financially ready, and if they aren't, how they can get there.

Replacing Income In Retirement

The uncertainty in these and other fields has more people considering their retirement savings and options for a steady income beyond Social Security. One increasingly popular option is annuities, which also saw growing demand during the 2008 financial crisis.

Many people see annuities as a form of retirement-income insurance that guarantees a regular income stream once they stop working. Many annuities also offer income riders that ensure the policy will keep paying until a set age or for your client’s lifetime. Before investing in an annuity or adding a rider, you will need to work with your client to calculate the amount of income they will need to retire comfortably. Any remaining value can be passed to your client’s beneficiaries.

Riders Beware

Annuity riders are nothing new, but they have grown in popularity as people look for income guarantees that are insulated against market volatility. However, before adding a rider to a policy, it is important to make sure your client understands it.

Essentially, a rider adds benefits or amends the terms of the basic insurance policy. Generally, each rider addresses a specific need, such as lifetime income or long-term care costs. Riders are purchased along with the policy at the time of application and cannot be added later.

Each rider, however, adds to the coverage cost, whether in reduced investment earnings or higher fees, and is typically shown with separate calculations. For example, a policy statement may show the accumulation (investment) value, surrender value and rider value separately. Discuss these with your client to make sure they understand the differences.

Providing Peace Of Mind

While we are living in unprecedented times between the pandemic, the upcoming election and the social unrest in the U.S., remember that your client is looking at 20 to 30 years of retirement. Who knows what can happen during that time?

The best advice for your clients who contemplating retirement is to develop a realistic picture of their expenses for the foreseeable future. Then, work with them to consider options that will provide a secure income if they do retire.

Make sure you show your client the projections with and without riders so your client understands their options and the impact of fees. Each percentage point, or even fraction, can make a big difference.

The COVID-19 pandemic will undoubtedly impact us for years to come. For your clients who are approaching retirement, their decision to retire early could impact their lifestyle for decades. You can help protect them and give them peace of mind by creating a plan for a secure income and educating them about all their options.

Ryan Skinner is founder and owner of Summit Financial Partners and author of Taking Stock: Protect Your Wealth and Create Reliable Income for a Happy and Secure Retirement. Ryan may be contacted at [email protected].