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Pandemic Chipping Away at Retirement Confidence

Practice Management
While the long-term implications of the Coronavirus pandemic on retirement security have yet to be fully realized, some cracks are starting to show in the retirement confidence of American workers. 
 
Retirement Security Amid COVID-19: The Outlook of Three Generations,” a new study by the Transamerica Center for Retirement Studies (TCRS), finds that nearly one in four workers (23%) who are employed or recently unemployed say their confidence in their ability to retire comfortably has declined in light of the Coronavirus pandemic. 

Across generations, the decline in retirement confidence increases with age: Millennials (20%), Generation X (25%) and Baby Boomers (32%). Encouragingly though, 53% of workers say their retirement confidence remains unchanged, while 13% said it has improved and 11% answered “don’t know/not sure.”
 
The new study is based on a survey conducted in late 2019 and offers comparisons with a supplemental survey conducted in April 2020, after several states issued stay-at-home orders and large segments of the U.S. economy had temporarily closed due to the pandemic. “The pandemic’s economic fallout should not be underestimated,” says Catherine Collinson, CEO and president of Transamerica Institute and TCRS. “For some workers, the current recession may be a major setback and for others it could be a knockout blow.”  
 
The study finds that workers are feeling a financial squeeze as a result of the pandemic and some are dipping or planning to dip into their retirement savings. One in five workers (22%) have already and/or plan to take a loan and/or withdrawal from their 401(k), 403(b), or similar plan, including 15% who have already done so and 13% who plan to do so. 
 
Millennials are more likely than older generations to be dipping into their retirement savings. One third of Millennial workers have already and/or plan to take a loan and/or withdrawal from their retirement account, including 22% who have already done so and 20% who plan to do so. By comparison, only 15% of Gen X and 10% of Baby Boomer workers have already done so and/or plan to do so, while 17% of Baby Boomers are “not sure.” 
 
When asked what they have used or would rely on if the pandemic negatively impacts their finances, workers’ most frequently cited source is savings (56%). Other sources include credit cards (29%), unemployment benefits (26%) and CARES Act stimulus money (24%).
 
Interestingly, workers’ level of familiarity with the retirement provisions contained in the CARES Act is relatively low. Only 17% of workers are “very familiar” with these provisions, including 18% of Millennials, 20% of Gen X and 10% of Baby Boomers.
 
Retirement Risks  
 
Even before the pandemic, millions of U.S. workers were already “financially fragile” and they face competing financial priorities that make it challenging to save for retirement in the best of times, according to TCRS. 
 
The percentage of workers who cite “saving for retirement” as a financial priority declined from 54% before the pandemic to 45%, while those citing “building emergency savings” slightly increased from 37% to 39%.
 
Meanwhile, workers estimate they will need $500,000 (median) by the time they retire in order to feel financially secure. This estimate is shared by Gen X and Baby Boomers, but Millennials estimate they will need only $300,000. Gen X (39%) and Baby Boomers (34%) are more likely than Millennials (29%) to say they will need $1 million or more by the time they retire in order to feel financially secure, the study further notes. 
 
Yet the estimated median for total household retirement savings among all workers is only $50,000. Baby Boomer workers have the highest retirement savings at $144,000, compared with Gen X ($64,000) and Millennials ($23,000), also estimated medians.  
 
Emergency savings is also apparently low, as the median savings level for Millennial workers was only $3,000, increasing slightly for Gen X to $5,000 and rising higher for Baby Boomers at $15,000.  
 
Before the pandemic, 52% of workers expected to work past age 65 or do not plan to retire, an expectation that increases with age—68% of Baby Boomers either expect to or are already working past age 65 or do not plan to retire, compared with 53% of Gen X and 43% of Millennials. But as TCRS points out, amid widespread unemployment, the question looms whether there will be opportunities available for them to do so. 
 
Among the action items that TCRS recommends:  
 
  • Workers can engage in financial planning to gain a full understanding of their financial situation, including creating a budget, prioritizing expenses, setting short- and long-term goals, and developing a retirement strategy. The 2019 survey shows that fewer than one in four workers (24%) have a written financial strategy for retirement. 
  • Employers can offer flexible work arrangements and maintain current employee benefits to help provide insurance protections, mitigate out-of-pocket expenses and help employees save for retirement. To that end, the study notes that two in three workers (66%) would like more education and advice from their employers on how to reach their retirement goals. 
The 2019 portion of the study was conducted from Nov. 6 to Dec. 27, 2019 among a nationally representative sample of 5,277 workers by The Harris Poll on behalf of TCRS. The supplemental online survey was conducted from April 16-20, 2020, among a nationally representative sample of 2,030 U.S. adults.