Examining the Financial Impact of Early Retirement and Reduced Contributions due to COVID-19

Various studies have examined how early retirement and reduced retirement contributions, both voluntarily and involuntarily, have affected workers, in general, due to COVID-19. This paper discusses and highlights specific financial impacts for employees due to early retirement. Evaluations based on standard actuarial methods are described and quantitatively presented. These evaluations show that early retirement has a more severe impact on older age employees. As expected, early retirement has a higher retirement income reduction for those with a high salary-asset ratio, since early retirement reduces the overall contribution to the retirement plan. Furthermore, we show that a reduced contribution overall impacts the retirement annual income uniformly regardless of age, and it more severely impacts those who plan to work longer than those who plan to retire soon. We also found that early retirement has a similar reduction impact on both fixed dollar amount contribution and fixed percentage of salary contribution mechanisms.