The economic impact of the COVID-19 pandemic has put current financial wellness and future retirement dreams at risk for many Americans, according to LIMRA Secure Retirement Institute (SRI) research—especially for those who lost their jobs or a portion of their income.
The pandemic has taken a toll on retirement confidence and reversed a trend of increasing confidence going back to 2013, the research finds. Less than half (49%) of survey respondents feel confident they will be able to have the retirement lifestyle they desire, down 6 percentage points from just a year ago. For the four in 10 (39%) respondents who have lost a job or income since the outbreak of COVID-19, retirement confidence dropped to 42%, down almost one-quarter from a year ago.
SRI also asked employees about their retirement savings and participation in workplace retirement savings plans. When it comes to access and participation in a defined contribution (DC) plan, non-disrupted employees fared much better than those who experienced job loss or a loss of income. Out of all employees, 64% are currently contributing to a plan. Seventy-one percent of non-disrupted employees are currently contributing, but only 54% of disrupted employees manage to contribute to a retirement plan.
When asked about the impact the COVID-19 outbreak has had on their ability to save for retirement, 44% of employees found the impact to be “somewhat” or “significantly” negative. Among employees experiencing a job disruption, nearly seven out of 10 (69%) say their ability to save has been negatively impacted. Only 28% of non-disrupted employees report a negative impact.
However, an Issue Brief, “COVID-19 Is Not a Retirement Story,” published by the Center for Retirement Research (CRR) at Boston College, says the COVID-19-induced recession appears to have had little impact on retirement overall. Researchers note that Social Security monthly payments have continued with an early retirement age of 62, and the program has served as a safety net for older employees who were forced to leave the labor market. “Thus, Social Security has provided a steady source of support during the pandemic,” they write.
In addition, employee and employer 401(k) contributions remained relatively steady, and while unemployment increased, that didn’t hurt older employees more than other groups.
The researchers point out that although the stock market experienced major losses last March, it roared back during the rest of the year. And 401(k) balances were not affected by mass withdrawals expected to occur after passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which allowed for coronavirus-related distributions (CRDs) and increased participant loan amounts. The researchers found that among plans offering CRDs, only 7% reported that more than 5% of participants used this option. In terms of loans and withdrawals generally, 25% to 35% of plans saw some increase in activity.
In addition, the CRR research found only 5% of employers suspended or reduced their contributions to 401(k) plans.
Looking at unemployment data, the researchers came to the unsettling conclusion that the reason the pandemic has had little effect on retirement is that “people who have the least have borne the brunt of it.”
“But the lack of impact from COVID-19 does not mean that our retirement system is in good shape,” the researchers note. “The problems confronting the retirement system before the pandemic remain. Social Security continues to face a 75-year deficit and the depletion of the trust fund in the mid-2030s. Employer plans continue to face problems of inadequate balances, a major coverage gap, no decumulation mechanism and low interest rates. And older workers continue to face difficulties in finding new jobs.”
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