Retirement readiness took a large hit from the COVID-19 pandemic, and the U.S government and employers should act now to improve workers’ retirement readiness, according to a new report from Aegon, the Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidade MAG.
Retirement plan sponsors and participants were grappling with the long-term sustainability of retirement systems prior to the onset of the COVID-19 pandemic. Social Security and other benefits were already facing increasing financial strains because of aging populations and low interest rates.
Corporate defined benefit (DB) pension plans have also become far less common. Many workers have had their DB plans replaced by defined contribution (DC) plans that place responsibility for sufficient retirement savings on employees.
“Globally and locally, we face an unprecedented, urgent opportunity to future-proof retirement,” says Catherine Collinson, CEO and president of Transamerica Institute and the Transamerica Center for Retirement Studies (TCRS) and executive director of Aegon Center for Longevity and Retirement. “We can apply the lessons of experience and fresh ideas to create better, stronger and more resilient retirement systems that enable everyone to age and retire with dignity.”
The onset of the pandemic added great disruptions to retirement readiness, and impacts to public health and global financial shocks have exacerbated an already insecure situation, according to the report, “The New Social Contract: Future-Proofing Retirement.”
For example, findings show that not enough workers are financially ready for retirement. Forty-one percent of workers in the U.S. and 22% globally achieved a high score for retirement planning and preparedness, according to the 2021 Aegon Retirement Readiness Index.
Additionally, 45% of U.S. workers and 36% globally experienced negative impacts to employment that can derail retirement savings—including layoffs, furloughs and reductions in working hours or pay—because of the pandemic. The report also found that 58% of U.S. workers and 42% globally are habitual savers who always make sure saving for retirement is a priority.
“People have the potential to live longer than ever before, and it is remarkable that so many are focused on preparing for their future retirement amid the upheaval of the pandemic,” says Collinson. “Despite their efforts, however, many people are at risk of not achieving a financially secure retirement.”
Employers can take concrete steps to improve access to retirement plans, resources and tools. The report recommends that employers “future-proof” retirement readiness by seeking to cultivate an age-friendly workplace that recognizes the value and contributions of workers of all ages; offering workplace retirement benefits that include automatic features, matching contributions and lifetime income solutions; and by offering health and welfare benefits, including life insurance and disability, that can provide insurance protections and help mitigate out-of-pocket expenses.
Further, the report recommends that lawmakers act to improve workers’ retirement readiness. Policymakers and governmental organizations should take steps to ensure the sustainability of Social Security benefits through necessary reforms to accommodate longer lifespans and the relative aging demographics; provide access to affordable quality health care for people of all ages, including retirees; and promote a positive view of aging and an age-friendly culture. Without action from U.S. lawmakers, the Social Security Administration predicts that if no changes are made to the current program, its reserves could run out by 2033, according to the Aegon report.
“Working together—policymakers, industry, employers and individuals—we can design more inclusive, equitable systems that address the ever-changing retirement landscape, in a way that provides greater flexibility and security for people to work and retire on their own terms,” Collinson says.
The study’s findings are based on data from the 10th annual Aegon Retirement Readiness Survey of 15 countries spanning the Americas, Europe, Asia and Australia. TCRS collaborated with Aegon and nonprofit Instituto de Longevidade MAG to issue the report.
The full text of the report is available here.
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