Retirement Tips For The Great Resignation – Forbes

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With nearly 4.2 million people quitting their jobs in October 2021 alone, the so-called Great Resignation is well underway. American workers are re-evaluating how they want to spend their working lives as they navigate a once-in-a-generation pandemic.

“We have all prioritized what’s most important to us,” says Walter Russell, financial advisor at and president of the Ohio-based Russell & Company. “We’re now saying, ‘Either I need to like what I do, or I need to get paid.’”

Taking time to reorient your life and decide what really matters is an unalloyed positive, but a rising number of participants in the Great Resignation may also face unanticipated consequences when it comes to retirement planning.

The Great Resignation and Social Security

When you’re moving into a new job, Social Security is probably the furthest thing from your mind. But if you aren’t careful, time spent unemployed between jobs could cut into your long-term benefits.

“Are you going to be unemployed for six months or a year?” asks Russell. “You’ll no longer be paying into Social Security during that time.”

That’s important because your eventual Social Security benefits in retirement will be determined by your earnings history and how old you are when you apply for the program.

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Workers only need 10 years worth of work history to qualify for benefits, but the Social Security Administration (SSA) determines your benefits by looking at your 35 highest-earning years. If you work less than 35 years, your benefit is calculated using 0s for each year necessary to add up to 35 total years.

In other words, chunks of time spent unemployed can potentially drag down your average lifetime earnings. This means you may end up needing to work longer to bump those zeros or artificially low earning years from consideration—or accept a lesser payout.

But future Social Security benefit recipients aren’t the only ones who might get antsy because of Great Resignation numbers. Even current recipients—or those very close to joining their ranks—may get nervous at the turnover rate.

“Social Security is based on current workers paying benefits for current beneficiaries,” Russell notes. “If we have a large number of people resigning, it could affect Social Security numbers.”

This means that the Social Security trust fund might run out faster or taxes might need to be raised sooner to make up the difference between taxes paid in by current workers to the amount of benefits paid out to beneficiaries each year.

Your 401(k) Isn’t a Rainy Day Fund—Unless Absolutely Necessary

It can be tempting to tap your retirement funds as you tap out of a job. Nearly a third of those with at least $50,000 in retirement accounts withdrew from those accounts in 2020, according to a survey from Kiplinger’s Personal Finance and Personal Capital. Almost 30% took a 401(k) loan from their accounts during that same period.

“Workers are giving themselves a necessary respite from work but using their retirement accounts as a rainy day fund or a bridge to the next job and depleting tomorrow’s money,” says Courtney Richardson, a lawyer and former stockbroker and investment advisor.

According to Kiplinger’s and Personal Capital’s survey, the majority of retirement account withdrawals or loans were to cover living expenses.

Tapping your retirement savings early means you’ll miss out on compounding gains. “Taking money out can set you back by years,” says Russell. “You could have to work an additional three to five years at the end of your career. Will that be worth it?”

Read More: What You Need To Know About 401(k) Early Withdrawals

Given that almost half of Americans don’t have an emergency fund large enough to cover three months of expenses, while more than a third would struggle with just an unexpected $400 cost, tapping into their future reserves may be unavoidable for many.

If you have no alternatives, some ways of cashing out retirement funds are better than others. “Don’t cash out the whole balance in a lump sum,” Richardson warns. “You’ll see 20% withheld for taxes plus the 10% penalty, and many people find they didn’t need the full amount anyway.”

Don’t Leave Your Retirement Money Behind

If you decide to take part in the Great Resignation, make sure you don’t forget about any retirement money you’ve built up at your current job.

While you certainly can keep your 401(k) at your old employer once you leave, it may not make financial sense to do so. You might, for instance, be subject to higher fees than when you were employed there. You also run the risk of forgetting about old retirement accounts the further out from your old job you get.

An estimated one million 401(k) plans are forgotten each year. Don’t let your workplace retirement accounts join that number. Instead, take time before you send in your letter of resignation to take stock of your retirement accounts. Now could be the perfect time for a rollover IRA—or if you like your new employer’s plan, you might be fine with moving your retirement funds directly over to your new 401(k).

Also consider the other retirement benefits you may be missing out on. Do you have any unvested 401(k) match that you may forfeit if you leave now? How long will it take before you are eligible to contribute to a retirement account at your new company? And do they have any vesting schedule you’ll need to be aware of?

Read More: The Lifetime Value Of A 401(k) Match

Richardson generally doesn’t see people asking these kinds of questions when they change jobs, and they may suffer because of it. Job hoppers “will see a loss of assets because of this lack of planning,” she says.

The Great Resignation and Early Retirement

Workers who are already close to retirement are taking the Great Resignation as an opportunity to start their next chapter a little early. The Federal Reserve of St. Louis estimates that more than half of the 4.2 million who retired in the first half of 2021 were those who retired earlier than expected because of Covid.

“I’ve seen a lot more people in the 60-and-over age range raising their hand to retire sooner,” Russell says. “They are so quick to get to the finish line, but they may not have considered all the consequences of retiring early.”

Those who retire early face a host of challenges, especially if they’re too young to claim Social Security or if they’re old enough but may face a lifetime reduced monthly benefit payment if they claim too early.

People who retire early before Medicare becomes available at age 65 will also need to figure out how to cover health and health insurance costs. And if you’re lucky enough to have built up a sizable nest egg, you’ll need to strategize the best (and most tax-efficient) ways for you to start drawing down your accounts.

“I don’t love financial advisors for accumulating wealth,” Richardson says, “but speaking to a financial advisor when you resign into an early retirement can really help you understand your personal needs. You can get a big picture of your money, including debt, healthcare costs and your regular expenses and how they’ll fit into your retirement budget.”

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