Delaying retirement has become common for many Americans, either because they saved too little, or they just want to continue working because they enjoy it.

 Others go in the opposite direction. They retire early — sometimes out of choice but often because their health or the economy forces it.

While early retirement might sound appealing, it can be a struggle for those who don’t have sufficient income to pay their bills. That is why if you are weighing the pros and cons of early retirement, you need to get a good handle on your potential sources of income.

 You may find you lack what you need — an especially unnerving conclusion if early retirement isn’t really a choice. 

 But don’t despair just yet. It’s also possible you have more income options than you realize. Those can be broken down into the categories of bridge income, fixed income, guaranteed income, and speculative income.

 Let’s look at each to see whether they fit into your situation — and possibly your early-retirement plans.

• Bridge income. To support yourself in early retirement, you may need to tap into your assets sooner than planned — essentially bridging the gap until your other expected retirement-income sources kick in. Fortunately, there are ways to do that without incurring penalties for early withdrawal. For example, if you retire before you’re eligible for Social Security and Medicare, you can withdraw money from your traditional IRA before age 59½ without paying the 10 percent penalty. That’s because of something called the 72(t) provision. Similarly, the Rule of 55 allows you to withdraw money from your 401(k) or 403(b) without penalty if you are between age 55 and 59½ and have been fired, laid off, or quit your job. (Note: This applies only to the retirement plan sponsored by your most recent employer, not an older plan from a previous employer. Also, while you avoid penalties with these strategies, you still must pay taxes on those withdrawals.)

• Fixed income. One example of fixed income is utilizing real-estate rentals. Certainly, there are downsides to being a landlord, but those who manage it right and carefully screen tenants may find this can provide a reliable income. Owning rental properties can come with tax advantages. Beyond that, the property’s value typically appreciates in a strong market, making it a potential long-term investment. If need be, you can sell it later in life to pay for such expenses as health-care expenses or long-term care costs. If you don’t like the idea of handling upkeep and dealing with tenants yourself, you could hire a property management company, but that of course adds to your expenses. Another situation to be aware of is that during COVID-19, some states put a temporary ban on evictions for tenants who meet certain criteria, which could make it hard to collect on rent in those situations. 

• Guaranteed income. It’s important in retirement to have some income that arrives each month, regardless of what’s happening in the market. The most common source of guaranteed retirement income is Social Security. For those considering early retirement, it’s worth knowing you can begin drawing Social Security as early as age 62. But there’s a caveat. If you claim the benefit before you reach full retirement age (between 66 and 67 for most people), your monthly benefit is reduced, and that reduction is for life. 

Another source of retirement income some people still have is a pension. If you have one, determine whether it provides a reduced benefit (or any benefit at all) to your spouse after you die. If not, you may want to weigh whether to take a lump-sum payment rather than your regular payout if that choice is offered. 

Finally, an annuity — either fixed or indexed — can provide you with a monthly check as well. Some annuities do come with fees and various rules and limitations, and you also want to research the claims-paying ability of the insurance carriers being considered. So study them carefully before deciding. A properly licensed financial professional can help you figure out what’s best for you and your circumstances as you make that decision.

• Speculative income. One of the risks of retiring early is that you are even likelier than the average person to outlive your savings. That means you may want to keep at least a portion of your money in the market so it can grow. Yes, that does mean you could experience market volatility, but it’s worth remembering that historically, after significant market drops, the market has strong recoveries. Still, you and your financial professional should take steps to minimize your risk exposure.

Finally, it’s worth noting that with retirement comes extra time, and how you use that time could make a difference in your financial situation. Maybe you could take on a part-time job to pull in extra cash. Perhaps a favorite hobby could turn into a money-making venture.

Or possibly, you just need to be cautious about becoming bored and filling that extra time with too many vacation trips or shopping sprees, spending money you really can’t afford to spend.

 Even with careful planning, early retirement can still be difficult for some people. If that’s the case with you, you may need to adjust your lifestyle accordingly. 

Regardless, though, it’s important in retirement — early or otherwise — to have an assortment of income sources. Many times, the best retirement plans combine three of the aforementioned strategies, if not all four. With the right amount of diversity in your portfolio, you may be able to live well in early retirement now, while still growing a nest egg that will see you through your later years.              

Alan Becker is president and CEO of Retirement Solutions Group (www.rsgusa.net) and author of “Return on Investment or Reliability of Income? The True Meaning of ROI in Retirement.” Becker also hosts two radio shows. 

On May 18, 2021, the Internal Revenue Service (IRS) issued notice 2021-31 (Notice) which provides additional guidance and clarifications concerning the new COBRA premium assistance provisions enacted under the American Rescue Plan Act of 2021 (ARPA). Under ARPA, employers are required to provide temporary 100-percent COBRA premium subsidies for certain eligible individuals who elect continuation coverage that is effective during the period of April 1 through Sept. 30, 2021 (for all of the period, or any part of it). Employers will receive a tax credit in the amount of the subsidies provided. 

The notice follows a question-and-answer format addressing specific issues regarding the implementation of the ARPA COBRA subsidies. Below are some of the highlights from the notice. 

Eligibility for COBRA Premium Assistance (Q&A 1-20)

Under ARPA, premium assistance is limited to covered employees who lost coverage due to an involuntary termination of employment or a reduction in hours and extends to the employees’ “qualified beneficiaries” — their spouses and dependent children (collectively referred to as “assistance eligible individuals” or “AEIs”). All AEIs must have been covered under the employer’s plan on the day prior to the covered employee’s termination to qualify for COBRA premium assistance. Other conditions also apply:

• To receive the subsidy, an AEI must not be otherwise eligible to enroll in other group health-plan coverage or Medicare during the period of April 1 to Sept. 30, 2021. An individual may lose and regain eligibility for COBRA premium assistance multiple times during the premium-assistance period — such as where an AEI becomes eligible for coverage under his spouse’s group health plan, but his spouse later loses coverage during the subsidy period.

• The COBRA premium subsidy is only available where the loss of coverage is due to a reduction in hours or involuntary termination of employment. If coverage is lost for another COBRA qualifying event, the individual would still be able to elect COBRA continuation coverage but would not be eligible to receive premium assistance. 

• If a qualified beneficiary has health coverage through an Affordable Care Act Health Insurance Exchange, the individual may still be eligible to elect COBRA continuation coverage and receive COBRA premium assistance but may not use COBRA subsidies towards the cost of exchange coverage. 

• Late or unpaid premiums for retroactive COBRA coverage will not impact an individual’s eligibility for COBRA premium assistance. 

Employers are required to maintain documentation reflecting an AEI’s eligibility to substantiate the employer’s eligibility for the tax credit. To satisfy this requirement, employers may require individuals to provide a self-certification/attestation to substantiate their eligibility. Employers may also rely upon internal employment records (i.e., reduction in hours or involuntary termination of employment) for this purpose. However, since an employer may not have means to confirm an AEI’s continued eligibility for premium assistance (such as, in the event an AEI qualifies for other health-care coverage), it may be preferrable to utilize a self-certification — noting that AEIs are required to notify the employer if they lose eligibility. The updated COBRA forms issued by the Department of Labor accommodate self-certification of AEI status.

Involuntary Termination of Employment (Q&A 24-34)

In the notice, the IRS defines an involuntary termination of service as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The IRS notes that this determination requires a review of the facts and circumstances surrounding the termination of employment. The IRS identified the following events which may constitute an involuntary termination of service: 

• Failure to renew an employment agreement. Treated as an involuntary termination if the employee were willing and able to continue employment and execute a new contract with similar terms. However, if the parties’ initial understanding were that the contract was for a set term and not intended to be renewed, the failure to renew the contract would not be treated as an involuntary termination. 

• Voluntary termination for good reason. Treated as an involuntary termination if it occurs from employer action resulting in a material negative change in the employment relationship — analogous to a constructive discharge. 

• Termination while on leave for illness or disability. Treated as an involuntary termination to the extent the employer has a reasonable expectation that the employee will return to work once the illness/disability has subsided. 

• Retirement. Not treated as an involuntary termination unless, based upon the facts and circumstances, the employee was willing and able to continue employment, the employer was prepared to terminate the employee, and the worker had knowledge that he/she would have been terminated but for the retirement.

• Involuntary termination for cause. Generally speaking, treated as an involuntary termination, except where the termination of employment is due to the gross misconduct of the employee. 

• Voluntary resignation for material change in geographic location. Treated as an involuntary termination. 

• Participation in voluntary severance-window program. Participation in a voluntary severance-window program will be treated as an involuntary termination of employment if, based upon the facts and circumstances, the employee is facing impending termination if the worker does not participate in the program. 

The following events will generally not be considered an involuntary termination of service:

• Termination for workplace safety. Not treated as an involuntary termination where employees voluntarily terminate their employment over concerns for their own health condition, or that of their family — unless employees can show that the employer’s actions (or inactions) resulted in a material negative change in the employment relationship — analogous to a constructive discharge. If the termination is based upon the employee’s personal circumstances unrelated to the employer’s actions/inactions (i.e., employee’s health condition, inability to locate daycare, etc.), generally, it would not constitute a constructive discharge unless the employer fails to take required actions or provide reasonable accommodations. 

• Childcare considerations. Not treated as an involuntary termination where employee voluntarily terminates employment because the employee’s children are not able to physically attend school, or the employee cannot secure childcare. 

• Death of the employee. Not treated as an involuntary termination. 

Coverage Eligible for COBRA Premium Assistance (Q&A 35-42)

The notice provides that COBRA premium assistance is also available for HRAs, dental, and vision plans. Retiree health coverage is also eligible so long as the coverage is offered under the same group health plan as active employees. However, if an AEI enrolls in different coverage with a greater premium, the AEI will not be eligible for COBRA premium assistance unless the AEI’s original coverage option is no longer available. In addition, if the employer no longer offers the AEI’s original health plan, the employer must permit the AEI to enroll in the plan most like the prior plan, regardless as to the cost.

Beginning & End of the COBRA Premium Assistance Period (Q&A 43-50)

The COBRA premium-assistance period begins as of the first period of coverage to which premiums are charged beginning on or after April 1, 2021. 

The COBRA premium-assistance period ends as of the earliest of: (1) the first date the AEI becomes eligible for other group health plan coverage or Medicare coverage; (2) the date the individual ceases to be eligible for COBRA continuation coverage; or (3) the end of the last period of coverage beginning on or before Sept. 30, 2021. 

While group-health plans must provide COBRA subsidies as of the first period of coverage beginning on or after April 1, 2021, if an AEI elects COBRA coverage under the ARPA extended election period, the AEI may choose to waive COBRA coverage for periods prior to the COBRA premium assistance period (i.e., before April 1, 2021), including retroactive periods of coverage beginning prior to April 1, 2021. 

Calculation of COBRA Premium Assistance Credit (Q&A 63-70)

The COBRA premium subsidy is equal to the premium amount that would have been charged to the employee for COBRA continuation coverage but for the COBRA premium assistance. However, if an employer normally charges less than 102 percent of the COBRA premium, the employer would only be permitted to apply for a tax credit equal to the amount that would have been charged to an AEI in the absence of the COBRA subsidies.

Claiming the COBRA Premium Assistance Credit (Q&A 71-86)

Premium payees (i.e., the “person to whom premiums are payable” such as employers, insurers, multiemployer plans, or government entities) are entitled to tax credits for COBRA subsidies as of the date the AEI submits his/her COBRA election. To receive the tax credit, premium payees must report the total number of AEIs receiving COBRA subsidies, and the total dollar amount, on their quarterly federal tax return, IRS Form 941. In anticipation of receiving the tax credits, premium payees are permitted to either reduce their tax deposits, including tax withholdings, that otherwise would be paid, up to the amount of the anticipated credit; or, instead, request an advance of the anticipated credit that exceeds the federal tax deposits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. If the employer does not have any employment-tax liability for the quarter in question, it may still claim the tax credit on the Form 941. The premium payee should also report any advance payments received in anticipation of the tax credit on its Form 941, entering zero on all remaining non-applicable lines so that the overpayment amount on the Form 941 is the total amount of the tax credit reduced by any advance payments received. 

The Treasury Department and the IRS are aware that additional issues remain and will continue to consider these issues — noting that they may issue additional guidance if warranted.                        

Lawrence J. Finnell is a senior counsel in the New York City office of the Syracuse–based law firm of Bond, Schoeneck & King PLLC. Contact him at lfinnell@bsk.com.