Today's Hack

Millions of people are leaving their jobs. They are pausing work, retiring early, or changing career paths. What is “The Great Resignation” and how could it impact your retirement plan?

A recent Forbes Article, details that droves of workers are changing careers, putting a pause on work, or are retiring early. They are calling it “The Great Resignation.” Today, we are going to discuss this term and what the potential impacts could be.

4.2 million people quit their jobs back in October. This continued into November and December. It’s unknown how long these people will stay out of work, which has ripple impacts. We see it in our stores and with supply chain shortages already.

We’ve had several clients approach us with the wish to retire early or change career paths because of everything that has happened in the past few years. A lot of people don’t want to transition back to commuting and office work. So, what are some of the impacts of putting a pause on your career or retiring early?

Taking a Break from Social Security 

If you aren’t contributing to Social Security, it could be cutting into your long-term benefits. But it will depend on your age and career. For most people, it won’t have a huge impact. Social Security is not a pension.

Social Security looks at your top 35 earning years. If you already have those years, you probably won’t see a significant decrease. If it is your peak earning years this is something to consider when taking a break from work. How will you replace that income?

The 401(k) Rainy Day Fund

People that quit their jobs last year may be looking at their 401(k) as a rainy-day fund. They say “I’ll take the penalty and live off of this money for a while.”

Consider that penalty in combination with the tax bill you’ll owe. You could easily lose 1/3 to a ½ of that distribution. When you are pulling money out, it’s hard to put money back in.

Taking Your 401(k) With You 

If you do walk away from your job, don’t leave your 401(k)! It’s never a good idea to leave it with an old employer.

It can be difficult to manage and you may be limited in your investment options. Accumulating your 401(k)s together into an IRA is likely your best option.

Things to Think About If You Retire Early 

Are you thinking of retiring early but are younger than 65? Make sure you consider healthcare. You need to look at how you will bridge that gap. If you were to get ill and have no coverage what would your plan be?

If you are at this crossroad and you are thinking about retiring early, sit down with an advisor and make sure your plans support your future!

Check out the Forbes article: https://www.forbes.com/advisor/retirement/great-resignation/

Listen to the entire episode or skip ahead using the timestamps below. 

[0:29] Welcome to 2022!

[1:05 ] “The Great Resignation” article

[2:05 ] 4.2 million people quit

[2:52] Has Phil had any clients retire early?

[4:41] Taking a break from Social Security

[7:07] Is a 401(k) a rainy-day fund?

[8:39] Taking a loan out against your 401(k)

[10:18] Taking your 401(k) with you

[13:33] Things to consider if you retire early

 

A Quotable Moment:

“If you are donating make sure you take advantage of how that’s structured to get the most tax advantage.”

-Phil Putney

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pputney@afswealthmgt.com

22029 Farmington Rd, Farmington, MI 48336