Should You Delay Your Retirement During the Health Crisis?

1st Mar 2021

concerned man

The COVID-19 pandemic has put the economy in flux and as economic uncertainty continues, many people are rethinking when to retire. Because of the economic impacts of the pandemic, a quarter of Americans plan to delay retirement, according to a survey conducted by LendingTree and Stash. One in three who earn less than $35,000 a year anticipate delaying retirement, while only 17% earning more than $100,000 per year said the same. Although these people are being cautious, it’s important to know that not everyone’s retirement plans have been disrupted by COVID-19. In fact, many high-income professionals are strategically delaying retirement to reap financial benefits – including tax savings from opening qualified retirement plans.

The Advantages of Postponing Retirement

If you’re approaching retirement but debating whether to delay it, here are some benefits to consider.

  • The financial market has more time to recover
  • There is more time to grow your savings, which means stretching that money further
  • Social Security benefits will be delayed, meaning a bigger payout
  • There’s an opportunity to add money to your IRA or 401(k), You can keep your employer-sponsored health insurance

A Unique Retirement Strategy for Small Business Owners

While many professionals think of postponing retirement because they are worried about not having enough income, high-earning small business owners are seeking unique strategies to reduce taxable income. This group of high-income taxpayers may have an opportunity to build their retirement and lower their tax liability with qualified retirement plans. Defined Benefit and Cash Balance plans are an ideal tax saving solution for high-income, self employed folks who are looking to catch up on their retirement and reduce their tax burden. Run a free calculation to see what your tax savings and total retirement benefit could be.

Defined Benefit Plans Make Up for Lost Time

As a third party administrator, we have many clients who defer their retirement to make up for lost time. Then they open a Defined Benefit or Cash Balance pension plan. One of our clients, a 59-year-old anesthesiologist, was working at a large medical center and quit in 2017 to become an independent physician because she wanted to catch up on her retirement. Under her 401(k) plan, the anesthesiologist was limited to $63,500 in retirement plan savings last year. Because of her new role, she was able to open a Defined Benefit pension plan for 2021 and will contribute $234,600 annually for five years. The doctor’s estimated annual tax savings will be $86,800. In five years, she will accumulate $1.35 million in her Defined Benefit retirement plan.

 

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