If you’re working from home during the pandemic, and the “new normal” becomes permanent, you should contemplate how this change could affect your retirement strategy.
First, it’s important to consider the difference between working from home (WFH) and working from anywhere (WFA). In a WFH arrangement, employers may still expect workers to come to the office from time to time. But in a WFA arrangement, employees have the flexibility to live and work from wherever they choose.
A WFA scenario offers maximum freedom and may allow a worker to relocate to another part of the country (or even outside of it altogether) to take advantage of a lower cost of living.
WFA is not nearly as common as WFH. In 2019, few companies based in the U.S. offered WFA arrangements, with about 95% of remote employees required to work from a set location. However, Household Pulse Survey data collected by the U.S. Census Bureau shows that more than 35% of U.S. households have engaged in more frequent telework than prior to the COVID-19 crisis.
Remote Work Can Be a Retirement Game-Changer
Working anywhere other than the office may reap significant cost savings for employees in a variety of areas, including:
· Cheaper housing
· Lower transportation costs
· Fewer socializing and entertaining expenses
· Reduced purchases and upkeep for work attire
· Greater ability to handle child and adult caregiving duties
Many employees who’ve come to appreciate the benefits of WFH are considering the possibilities of extending that arrangement — and rethinking their retirement plan in a number of ways as a result.
Retire sooner. With a substantial drop in housing or caregiving costs, you may find that you can retire sooner than you’d hoped. Taking advantage of a lower cost of living can bend the retirement timeline significantly. You may not have to move very far for this to make a big difference, particularly if your job requires you to reside in a major city, where the cost of just about everything is often much more expensive.
Work Longer. On the other hand, WFH may give some the flexibility and desire to continue working past retirement age. For example, if an employee has health or mobility limitations, working from home may make it easier to stay in the workforce longer. Additionally, employees nearing retirement may have parents who require assistance, and having the kind of flexibility that WFH or WFA affords them may allow them to fulfill their family obligations while remaining on the job. Others may want to work longer to be able to afford an “upgrade” to their retirement lifestyle.
Re(work) the Numbers: The first step in evaluating the possibility is to reevaluate the household budget. With housing, transportation, childcare and so many other major components of the budget potentially affected, you have to crunch the numbers. Your financial advisor can help you make an A/B comparison of what your retirement plan looks like if you work remotely or on-site to see how it impacts your retirement trajectory.
The pandemic has created significant hardships and burdens for many families. The possibilities for continuing remote work may constitute a bright spot in the darkness.