The Uneven Retirement Effects of COVID-19

Pandemic-related retirement patterns differed from those seen in previous economic contractions.   

The COVID-19 pandemic prompted an unanticipated 1.6 million retirements for workers age 55 and older, with uneven and lasting aftereffects in several industries, according to Vanguard research.

The Vanguard research, “The Great Retirement? Or the Great Sabbatical?,” compares expected and unexpected retirements that occurred before and after the pandemic.

“We estimate roughly an additional 1.6 million workers 55 and older retired because of the pandemic over the past two calendar years, nearly doubling our pre-COVID projections,” Andrew S. Clarke, co-author of the Vanguard paper, stated.

In 2020, 2,210,423 workers retired, of which an estimated 1.2 million were anticipated retirements and 1 million were unanticipated, according to the research. In 2021, 1,165,0323 workers retired, with nearly even numbers of retirements and anticipated retirements.

In 2019, 1,069,740 workers retired, while 790,202 retired in 2018, data show.  

Older workers delayed retirement in the wake of past economic slumps this millennium—namely, the Great Recession and the dot-com market crash—but they ran for the exits this time around, according to Vanguard.

“In 2020, by contrast, older-worker retirements increased,” the paper states. “The difference most likely reflects COVID’s disproportionate threat to older workers and the surprising surge in stock and housing prices since the 2020 downturn.”

The uptick in retirements is most acute for education services, which constituted 15.6% of all retirements in 2020, and professional, scientific and technical services, at 13.3%, data show. 

Although educational services account for 2.4% of the U.S. labor force, the effect of worker exits from the working population was a 20% increase from 2019 levels, the data show. 

Professional services sector retirements among lawyers, engineers and managers also increased by nearly 20% from 2019 levels, the paper states.

“DB plans are less common in this sector, though these workers are among the highest paid, putting them in a position to accumulate the wealth necessary for an earlier-than-expected exit from the workforce,” the paper states.

The research also used a prototype of the Vanguard Retirement Readiness Model for insight on the retirement security implications of workers retiring earlier than anticipated.

“Some retirees may end up coming back to the workforce, whether by choice or circumstance,” the release states. “Those who can rely on defined benefit pensions are in good shape. Those who can’t need liquid assets in the top deciles of the national wealth distribution to finance life after labor. Their Great Retirement may become the Great Sabbatical.”

Vanguard finds that many workers and individuals without a pension, and particularly those with lower compensation, may have to return to work. Workers’ unanticipated retirement puts pressure on income replacement in retirement, according to the report.

“Except for pensioners, those who retired earlier than expected would have had to amass financial assets equal to as much as 10 times their annual income to confidently meet living expenses through at least age 84,” Fu Tan, investment research analyst at Vanguard and a co-author of the paper, stated in the release. “In our analysis, that figure would put these high earners in the upper deciles of the wealth distribution.”