What You Should Know Before Retiring During “The Great Resignation”

Thinking of quitting your job amid the Great Recession? You’re not alone. Many American workers — 53% — say they’re open to leaving their jobs and 44% say they actively looked for new jobs in the last quarter of 2021, according to a survey from insurance company and risk management firm Willis Towers Watson.

And it doesn’t seem to be slowing down in 2022.

“The findings suggest that employees continue to job hunt at the same pace as last year and that the labor exodus is not yet over,” said Steve Nyce, a senior economist at WTW.

Workers surveyed said they are looking for greener pastures — with reasons such as better pay, more favorable working arrangements and better health benefits topping the list. These may be short-term changes but making a switch without thinking about your retirement plans could be costly in the long run.

It’s important to keep an eye on your retirement plans as you make a leap to a new job. A lot of people risk losing a lot of momentum in retirement savings if they don’t.

The Great Resignation has broken records for job hopping. A record 47.8 million Americans quit their jobs in 2021 — almost four million a month on average — according to the Society for Human Resource Management.

At the same time, the pandemic and Great Resignation has roiled the retirement landscape. Some people have taken advantage of economic changes to retire early while millions more have reported difficulty saving for retirement — even deciding to put it off.

Americans Divided: Early Retirement Boom and Difficulty Saving for Retirement

The U.S. Federal Reserve estimates that the labor force will be 5.8 million people fewer in June 2022 than it was before the coronavirus pandemic started. It’s unclear how much of that lower number will be due to early retirements.

But Goldman Sachs estimates that 70% of the people who left were 55 or older — making them potential candidates for early retirement exits.

People with higher incomes and retirement savings had certain advantages that allowed them to take early retirement. The stock market stayed strong through the pandemic and home prices skyrocketed in much of the country. These investments left some people flush with cash and in a good position to retire early.

But others struggled. Nearly a third of households reported that they were spending less and saving more in the first year of the pandemic. And 25% reported they had borrowed against their 401(k) plan or withdrew part of their retirement savings, according to a 2020 survey by Willis Towers Watson.

But with rising inflation — along with rising wages — some economists suggest that we may see a wave of “unretirements” as people choose to go back to work later in 2022.

What to Know Before Retiring in the Great Resignation

Before jumping on the bandwagon of early retirements over the last couple of years, you should consider what the next couple of years will look like for your retirement savings and investments.

There are several items to consider before tendering what you expect to be your own personal great resignation.

Considerations for Early Retirement in the Great Resignation

• Social Security sold short
  • Early retirement can delay your ability to tap into Social Security — or how much you’ll be able to draw. You can’t start drawing Social Security retirement benefits until you turn 62. Even then, it’ll be substantially less than you would at full retirement age or if you wait to retire until you’re 70. You’ll also give up paying into Social Security for months or years — which also reduces the amount of your monthly benefits.
• Medicare vs. private insurance
  • You can’t enroll in Medicare until you turn 65. So, if you retire before then, you still have to find a way to pay for health insurance. Private insurance policies vary in premiums, deductibles, copayments and coinsurance. You’ll want to compare those expenses with Medicare costs and to your current out-of-pocket health insurance costs when deciding on whether to retire early.
• Penalties for early withdrawal from retirement accounts
  • Until 2022, you faced a 10% penalty for money you took out of your IRA, 401(k) or other qualified retirement account. But a new rule can help you get around that — if you take Substantially Equal Periodic Payments (SEPPS). These use an IRS formula and limits how much you can take out and still avoid the 10% penalty rule. These payments are still subject to income taxes. You’re required to stick to these payments until you reach 59 ½ and they may deplete your savings before you die.
• Factor in inflation
  • Americans have not experienced current rates of inflation in more than two generations. And there is still a lot of uncertainty as to how long it will remain at these levels. That makes planning for your future in retirement more complicated. In short, you’ll need to save longer and save more to reach the same retirement goals you may have had just a couple of years ago. That’s all because you’ll have to spend more to buy the same goods and services now.
• Talk to a financial professional
  • While on the surface it may look like a good time for you to retire early, remember that you may be considering the idea based on rapid changes in the last two years. Realize that things can change just as quickly again — in the opposite direction. Retirement, especially during the pandemic and Great Resignation, has a lot of moving parts. Talking with a financial professional about your retirement goals and current financial situation can help you make an informed decision on when it’s best for you to retire.

Avoid Retirement Plan Mistakes When Switching Jobs

With unemployment at or near record low levels — the U.S. hit its lowest unemployment rate in 50 years in Sept 2021 — it’s clear that “The Great Resignation” is more of a “Great Job Migration” as people move from one employer to another.

But because so many retirement plans are through employers, there are several things about your retirement savings to keep in mind when making a switch and several steps you can take to avoid costing yourself big bucks in your retirement.

About 60 million Americans are enrolled in a 401(k) retirement plan or similar plan through their employer, according to the Investment Company Institute. Millions more retirees draw benefits from 401(k) investments.

But if you’re part of the mass job migration of the Great Resignation, there are critical steps you should take and mistakes you should avoid with your 401(k) plan when you switch jobs — both at the job you’re leaving and the one you’re going to. These can pay off down the line when you retire.

6 Tips for Getting the Most from Your 401(k) Plan When Changing Jobs

• Decide whether to rollover or keep your plan
  • If the balance of your 401(k) plan is $5,000 or more, you can leave it with your old employer. But less than that, the employer may require you to cash it out. That can be costly — especially if you’re younger than 59 ½ — sticking you with taxes and a 10% penalty. But you can avoid that by putting your 401(k) savings into a rollover IRA — a type of individual retirement account.
• Consolidate your 401(k) plans
  • It’s not uncommon for people to have multiple jobs these days — and that means they may have multiple 401(k) plans. Rolling them over into a single individual retirement account (IRA) can make a string of past employer retirement plans more manageable.
• Pay off any 401(k) loan
  • Pay off any loan you borrowed from your 401(k) right away. Once you leave your employer, you only have until the next tax deadline, along with any extensions you may file, to return the money.
• Sign up for a new retirement plan right away
  • Sign up for your new employer’s 401(k) plan right away. If you wait on automatic enrollment, it may mean you won’t be putting money into your new retirement plan for one to three months. That can be costly in the long run.
• Take the free money from your boss
  • Take advantage of your new employer’s 401(k) match. Find out what you need to contribute to get 100% of that “free money” from your employer, then make sure you’re contributing at least that amount each paycheck.
• Don’t accept the default investments
  • Your new 401(k) will have default settings on where your contributions will be invested. But investment portfolios vary from person to person. Make sure you reset the contributions so that it’s going to a diversified portfolio based on your personal financial situation and goals.

There will be a lot on your mind as you move to a new job but be aware of your options and any obstacles with your retirement plan as you go.

Remember that you are entitled to 100% of the money you have contributed to your 401(k). But there may be limits on how much of your employer’s matching contributions you are entitled to.

This can vary based on how long you have been with the employer or based on the terms of the retirement plan.