How “The Great Resignation” Could Impact You Or A Loved One’s Retirement

Droves of workers are retiring early or taking a break from work as they change career paths. It’s become known as The Great Resignation. On this episode, we’ll highlight some of the key takeaways of a recent Forbes article and explore a lot of the impacts on retirement planning from across different age groups in the wake of this massive workplace shift that’s underway.

Important Links

Forbes Article: https://bit.ly/3G2lCo9

Website: http://www.yourplanningpros.com

Call: 844-707-7381

Transcript Of Today's Show:

Marc Killian: Hey everybody, welcome back to Plan With The Tax Man. Thanks for tuning into the podcast as we talk investing, finance, and retirement. We are into the new year and Tony and I are back to do more podcasts, and this first one is going to be about the great resignation. I don't know if you've heard this term or not, but how it might impact you or a loved one's retirement. It has been all the conversation here the last couple of weeks, the great resignation. So we're going to get into that with Tony. What's going on, my friend? How are you doing?

 

Tony Mauro: Doing good. Fresh back from the holidays and feeling pretty good. Had a great holiday along with my family, and so hopefully everybody had the same. It was a lot of issues if you were traveling and, and everything else going on, but hopefully everybody got to have some fun.

 

Marc Killian: Yeah. We were chatting, a little bit of a bug going around. I got a head cold on New Year's Eve. So not that I had any big plans or anything, but I was like, "Well, I'm not going anywhere."

 

Tony Mauro: Yeah. That's actually when mine started.

 

Marc Killian: Oh, was it? That's funny.

 

Tony Mauro: I was under the weather, yeah.

 

Marc Killian: Yeah, a little bug going around. But hey, we're doing our thing, we're hanging in there, we're getting stuff done. And this is episode number 57, so we are on our 57th podcast. So we're not quite yet eligible to withdraw from those accounts early at 59 and a half. The podcast is not old enough for that yet, but it's getting there. So hey, listen, have you heard about this or have you been talking with clients about this great resignation? Droves of workers are retiring earlier, taking a break from changing their career paths. Obviously the last two years, all this COVID stuff has changed people's perspectives. It's put all kinds of different things in play. And so on this episode, we're going to talk about some of the stuff from this Forbes article, and we'll put a link to it as well for folks, if they want to check that out. But really kind of talking about the impacts that it has on the retirement planning world across different age groups. Have you had people come to you, Tony, and say, "You know what? I'm done. I'm out. What can we do?"

 

Tony Mauro: We've had it both from tax clients just coming and telling us that as employees, and then of course on the accounting client side that we service as our clients, we've been talking about it for about a year and a half, that they just cannot find employees. And they've got plenty of work to be done, and it's going on all over. It's going on in my own industry on the accounting side. We talk about it at every association meeting, trying to find good qualified people. And it isn't like people are interviewing and can't find people, it's just, there's nobody to interview.

 

Marc Killian: Yeah. It kind of started out, we were all seeing the stories and realized it was happening with some of like the lower-paying industries, fast food jobs, things of that nature. People were like, "Hey, I'm not going to kill myself for this kind of pay." Especially when everybody's ordering food, picking up at drive-throughs, because no one's going into restaurants and all that kind of stuff. But lately it's been of all kinds of industries and all kinds of age groups, not just the lower paying stuff. To the point here, I got a couple of key points, Tony, 4.2 million people quit their jobs in October of '21. I mean 4.2 million people. They didn't get fired. They didn't get downsized. They quit.

 

Tony Mauro: They quit. Yeah.

 

Marc Killian: Now it's unknown also how long people are going to stay out, so if you choose to walk away, there's some big takeaways that could impact your retirement planning or things of that nature. There's even people in their forties, early fifties that are like, "Hey, you know what? I can't take it anymore," or, "I'm afraid to go to work," or whatever the kind of mentality is. And so let's look at some impacts, some takeaways to think about if you are stepping away from a job for any length of time, think about some of the other things that this could do to you. So for example, social security, Tony. Talk to me a little bit about taking a break from paying in, what that does to your long term benefits.

 

Tony Mauro: Well, and I'll address that in just a second. Kind of going back to what, what we're seeing, I think some of it, and this is all personal opinion. Some of it is like you said, people, when they were home, they have reconfigured their personal lives somewhat and either expenses, things like that. And figured out, "Well, maybe I don't need to work as much and I'm surviving." But I think a lot of them haven't looked at what we're going to talk about here, and it's the big picture.

 

Marc Killian: And it got good to a lot of us too, which is understandable, right? I mean, my brother's 63, so we're talking about social security. He didn't want to turn it on at 62. His plan calls to wait until 67, but he's sitting there saying, "If my job tells me I have to go back to the office and drive again," because it would be an hour drive for him, he's like, "I think I'm going to be done." But he's like, "But if I can stay working from home, I'll do it."

 

Tony Mauro: Yes. And that's the other big buzzword, is remote work. And we, even in my own company, we've always wanted to offer that, but it has accelerated that as a benefit. And we kind of pivoted a couple years ago, and we're going to continue on. I just sent out a video yesterday about the tax season coming up, the days of in-person appointments are kind of over for at least our firm. Because we found that we can work more efficiently and produce the same type of product for that particular thing.

 

Tony Mauro: But anyway, that's getting down in the weeds. But back to the social security, really if people are going to start taking off from their job, obviously when they're not working, you're not paying into social security. Now, if this is just going to be a short term thing, it's not going to be that bad, but you should talk to your advisor about how it's going to impact social security benefits, and how long you're thinking about maybe being out of the workforce. Because eventually it's going to impact your average 35 highest earning years if you stay out for a while. It could, anyway.

 

Marc Killian: Right. And a lot of people don't realize that, right, Tony? It's an average look at your highest 35 earning years. And if you're in your fifties or late fifties, and maybe you're in my brother's situation or something like that, you could be in your peak earning years. You could be affecting those numbers big time.

 

Tony Mauro: You could, because that's when most of us are earning the most, is 50-plus where you finally got to that point. And so granted, social security is not the end all, I understand that.

 

Marc Killian: Right. But it is sizeable.

 

Tony Mauro: But it is something. And so you want to make sure that you understand that before you go making a I'm done forever type of decision, in my opinion.

 

Marc Killian: Yeah. Even walking away for six months or a year, I mean, maybe it wouldn't make a huge impact, but again, it could. If you step away from work for, let's say a year or two, think about the ladies a lot of times. Early on in life, if they step away for a number of years to have the children and raise the children, maybe stay at home for the first 6, 7, 8 years of their life, which is one of the reasons why we see often that women don't have the same. There's also the pay gap, which has been getting better, but at the same time, they step away from the workforce. And so when it comes to retirement age, the numbers are not the same from social security as it would be for their male counterpart.

 

Tony Mauro: Yeah. That's exactly right. And in today's world, when we have the software and social security's website doesn't do a bad job, but there's additional software out there that you can kind of go in. If you've got your social security statement of your earnings and things, and you can go out and get those from Social Security Administration. You can kind of calculate, if I step away for a year or two, how that's going to affect my benefit and whatnot. And so I would urge you to go take a look at that before you decide for a long period to step away.

 

Marc Killian: Yeah, good point. Takeaway number two from this article, Tony, was the 401k. It's not just a rainy day fund, right? It's for retirement. And so talk to me about a couple of bullet points or some key points as to maybe using this as your stop gap, if you were transitioning for a little while or something like that, what it might be doing to you.

 

Tony Mauro: Well, and we saw it a lot last tax season, and I would agree. I know you gave me the stat, about 30% of the people who have at least $50,000 in their 401ks, took out money in 2020.

 

Marc Killian: Yeah, took out a loan against it.

 

Tony Mauro: Either a loan or withdrawals, and I would agree with that. We, we saw at least that percentage of our tax clientele. And so I would say that's fairly accurate, probably across the nation. And you definitely, if you're going to step away for a length of time, you don't want to use the 401k as your I'm going to live off of fund. Because otherwise, again, it's going to affect your overall plan, and you're going to get to 65 or whenever you think you're going to retire. And all of a sudden now all these numbers that you may have planned on are going to be drastically different. And so again, that goes back to, I think you need to meet with your advisor if you're going to talk about using that as your living fund. Because if you do, I think your retirement's going to be affected pretty much [crosstalk 00:08:52].

 

Marc Killian: So what are some of the negative kind of impacts to that? So if you take money from your 401k, obviously if you're under the appropriate age, if let's say you're in your early fifties, you're paying the tax, you're paying the penalty to get to this stuff. But you're also losing the compounding over, let's say another 15 years, right?

 

Tony Mauro: Right.

 

Marc Killian: That's the real damage.

 

Tony Mauro: That's the real damage. Yeah. In our annual tax-only type clients, I would say probably somewhere north of 35%. We see it every year, where they're withdrawing money out of their 401k and they're still working. And these aren't even loans. These are just, "Well, I needed the money."

 

Marc Killian: Oh, wow. Okay.

 

Tony Mauro: So they don't realize. So on top of that, they sometimes get a a very stingy or stinging tax bill, and they're mad about that. And then on top of that though, the bigger picture, like you said, they don't realize every time you're pulling money out, you're pulling money out and you're losing time to make that up because you're getting older. And so we try to educate them a little bit on that and tell them, "This is not a rainy day fund. This is supposedly for your retirement," obviously, but I think it goes back. What I see with most that do this is their personal financial plan is not in a good spot, meaning they don't have an emergency fund. They don't have a fund for spending and they just use this like that. And I don't think that's a good thing.

 

Marc Killian: Yeah, definitely. So again, just be careful with this. It's not the rainy day fund. Now, speaking of the 401k, Tony, if you are going to step away, if you are walking away from one job, maybe you take a little while off, then you go to another one. Or because there's so many jobs available, maybe you kind of take your time, you're head hunted, whatever the case might be. Take that 401k with you. Don't leave that joker behind.

 

Tony Mauro: So as I was saying before, taking the 401k with you could be a good idea. I would definitely though, take a look, because sometimes fees are a little higher if you leave it there. Sometimes they're not, but it's worth an ask because you definitely don't want to necessarily do that. The other thing is most 401ks, obviously if you go to an employer with a 401k, it's a fairly easy process to transfer it. So once you have all the facts, you can get that stuff going.

 

Tony Mauro: But the other thing you got to watch though, is if you do some potential company matches in your 401k and you're not fully vested, you need to know how much you potentially could be leaving on the table there if you leave before it's vested. And so it's a good idea to research that before, if you've got a significant balance, of course, right before you leave or something like that. But they are portable. You can take them with you. A lot of companies will allow you to leave them there. I think a lot of our clients don't like the fact that they may have six or seven of these floating around and they kind of lose track, over employers over the years and they try to consolidate them.

 

Marc Killian: Yeah. I mean, we've talked about that before, right? Not leaving those behind. There's lots of reasons, the fees, you've got more options and so on and so forth. And if you are changing, you can roll that over custodian to custodian and not have to worry about any kind of taxable events. So if you've got the old one behind, just talk with your advisor or work with the program to get that switched over. As long as you're not basically putting your hands on the money, you're good to go. You're just transferring and not making an taxable event.

 

Tony Mauro: That's right.

 

Marc Killian: Okay. And then the fourth kind of takeaway from this Tony, and then we'll wrap up, is obviously this great resignation seems to be, and the working from home thing, it seems to be kind of tailor made for those early retirement dreamers. But just a couple things to be aware of, a couple of bullet points we've got here. Just kind of want you to address those a little bit.

 

Marc Killian: Because again, if you are of a certain age, let's say you are 55-ish or up and you're thinking about, "The job's going to make me go back and this office building is full of people and I don't want to be around people." And you've got some paranoia or you've got some health concerns, or you've got some whatever you want to put to it, or like my brother, you just don't want to drive anymore. Whatever the case is, if you're thinking about pulling on the trigger early, beware of a couple of key points that it's going to cost you. So just look at some of these things. So give us some of these big bullet points here, Tony, as to why you want to kind of keep an eye on this, if you decide to leave early.

 

Tony Mauro: Sure. It's really for the people that are, I would say below 59 and a half, for sure, and we have a lot of them. And I'm 54, going to be 55 coming up in June, so yeah. You start kind of thinking about it a little bit, but the first thing is of course, if you're my age or somewhere in between here, you can't qualify for social security. So that payment is not going to be there for you yet. And in my case, I'll relate it to my case, I have my health insurance coverage through my wife's work. Now I would still be able to be covered, but you may not be able to, to have that. If you decide to quit and you're carrying the coverage and you don't have it anywhere else, you're going to have a real issue there. And healthcare is extremely expensive, or healthcare coverage is, out on the open market. And so you're going to have to think about that because that's a big one.

 

Marc Killian: Yeah. And that's 65 and under, right? Because you're not going to get-

 

Tony Mauro: 65 and under, yeah. Because you can't get on Medicare. And so that, I think by itself may be a hindrance, on top of everything else. But then there, you've got some tax issues, some potential tax issues with some tax efficiencies. I mean, if you decide to get out of the workforce, obviously your tax rate could potentially go down. But you're going to have to take a look at that with your tax person, just to see if there's going to be any odd thing, especially if you're going to take money out of a 401k or something like that. You definitely want to understand what the tax ramifications are going to be.

 

Tony Mauro: And I think the last one that that's probably as equal as healthcare really is, how are you going to survive? In other words, how you going to replace this income from this gap you're that going to have?

 

Marc Killian: Right. Exactly, yeah. Kind of a big one, right?

 

Tony Mauro: [crosstalk 00:14:57] that's coming in.

 

Marc Killian: Yeah. It's like, "Hmm. I got to keep the lights on, what am I doing here?" And obviously we've hopefully saved, and that's back to the point of some of these different accounts, but that totally changes the structure of what you're planning to do, Tony. Because you you've now added the longevity multiplier into this thing, because maybe your plan all along was to retire at 65 or 67 or whatever. And you've stress tested this joker out for 30 years. Well now, you know what? You're pulling the trigger at 55 because of this great resignation, you've just added another almost decade to that. That could cause some big wrinkles.

 

Tony Mauro: Cause some big wrinkles, and more than likely, if your health is at all good, you're going to want to get out and do things in this decade. So your monthly expenses could actually go up. And that's what I've thought about is, I still want to personally keep going, keep investing, keep working so that I can hit my mark at the age that I want, but it's well after retirement. But the allure is there, though. Thinking about, hey, if I could survive. But I can't tell you how many people tell me, "Yeah, I've retired. I just want to survive". And I guess it depends on where you fall in that. For me, I want to do a little more than just exist, but that is an option. But obviously like you said, if you have your investments and your plan in line and you've stress tested this, you've got to add a whole nother 10 years on this thing, so you better double check the calculations.

 

Marc Killian: Yeah. More free time, it's not free.

 

Tony Mauro: It's not free. No.

 

Marc Killian: Doing nothing, I guess is free, but more free time is not free. Because we tend to just want to go out and do things. Or even if again, if you're back to some of these COVID concerns, you're still going to want to do something. You're going to take up a hobby. You have to, right? I mean, your brain is going to require it. Your body is going to require that you can't just sit and be a couch tater. So you definitely want to make sure that you're thinking about some of these key takeaways when it comes to the great resignation, this mass Exodus we've seen over the last six months of people leaving their job voluntarily. Some of it also non-voluntarily, the downsizing and things of that nature, whatever.

 

Marc Killian: But however you kind of fit or fall into this category, if you have some questions or you want to make sure that your plan is there and is going to be stout and you want to stress test it for whatever your situation might be, that's why it's a good idea to get with a qualified professional like Tony and his team at Tax Doctor Inc. Because you can go through the planning process and you can say, "Okay, here's what happens if we this. And here's what could happen if we that," and so on and so forth. You can look at the social security scenarios from one spouse to two and different things of that nature. So all of these things are available, but you got to take the action and have the time, do it. So if you're not working with Tony already, consider stopping by the website and checking him out at yourplanningpros.com. That's yourplanningpros.com. If you've got questions or concerns, get onto his calendar.

 

Marc Killian: Subscribe to the podcast. It's complimentary to do that. Obviously it doesn't cost anything to join up with podcasts. You can find it on all of your favorite podcasting apps, whichever ones you might use, like Apple, Google, Spotify, whatever. Typically those are already pre-installed on your phone nowadays. If you're an Apple user, for example, it's already on there. Apple Podcasts, just type in Plan With The Tax Man in the search box on the podcasting app and you'll find it that way. But again, you could find it all at yourplanningpros.com. That's yourplanningpros.com. Tony, thanks for hanging out with me, my friend. I hope you get to feeling better soon and I'll talk to you in a couple of weeks.

 

Tony Mauro: All right. Sounds good. Take care.

 

Marc Killian: We'll catch you next time here on Plan With The Tax Man, with Tony Mauro from Tax Doctor Inc.

 

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