If there’s one silver lining to the COVID-19 pandemic, it might permanently change how much Americans spend and save for retirement.
Before the pandemic, the economy was in an historically long expansion and Americans were spending more and saving less with little consequence. However, the sudden fall into an economic recession was a “wake-up call” for many Americans who were not financially prepared and regretted not having enough in savings going into the pandemic, according to Clever Real Estate’s “How COVID-19 Has Impacted Americans Financially: September Update.”
As part of its COVID-19 Financial Impact Series, the real estate listing firm conducted surveys at the end of March, a month later in April and then again in September to learn more about Americans’ financial wellbeing and how they are adjusting six months into the pandemic.
“We were particularly interested in whether people’s finances were more stable now that joblessness has slowed and lockdown restrictions have been at least partially lifted in most major areas across the country,” writes Dr. Francesca Ortegren, author of the report.
In the light of the pandemic, the biggest regret among Americans is not having enough emergency savings (40%), followed closely by saving too little for retirement (32%).
Other top findings included how little they put into investments (22%) and living outside their means prior to the pandemic (19%).
Impact on Saving and Spending
Consequently, the findings show that the economic impact might have a long-term impact on saving and spending:
- 41% of respondents say they’ll put more into emergency funds and save more for their future;
- 21% plan to put more money toward retirement;
- only 10% of respondents say their spending habits will return to normal after the pandemic; and
- 6% say they will invest in less-volatile markets.
Recessions can affect how much people save, perhaps permanently, observes Ortegren. Citing data from the Federal Reserve Bank of St. Louis, she notes, for example, that prior to the 2008 financial crisis people saved about 3.5% of their disposable income (December 2007), but by June 2009, that had nearly doubled to 6.7%. “That trend toward saving more continued until it peaked at 10.2% in 2012, and—while it dropped off afterwards—savings didn’t reach pre-recession lows until 2020,” she writes.
And while survey respondents report having less in savings now than before the pandemic, they’re attempting to spend less, too, she notes. In fact, one-third of respondents said they’ve intentionally cut spending since March.
Not surprisingly, Americans’ biggest financial concerns include job stability (40%), paying for unexpected expenses (40%), paying for everyday bills (37%) and running out of emergency savings (29%).
In fact, the survey found that 61% of respondents say they will run out of emergency savings by the end of the year. This includes 16% who already ran out of savings during the pandemic and 21% who never even had emergency savings to begin with, the report notes.
Additional findings show that nearly 30% of respondents reported dipping into their emergency savings to help cover expenses during the recession, with 19% having spent more than $5,000 of their savings.
Less Worried?
Despite these worries and many continuing to struggle financially, the survey found that respondents are generally less worried about their finances now than they were in April.
For example, when asked whether they are concerned with their retirement savings as a result of the pandemic, nearly 60% of respondents indicated as such in the April results, but that level dropped to just under 24% in September. Similarly, slightly more than 64% expressed concern about running out of emergency funds in April, but that level dropped to nearly 29% in September.
“Americans might be less worried about their finances because the initial shock to the economy has leveled out,” says Ortegren. She notes that nearly half of the 30 million jobs that were lost between mid-March and the end of April have been recovered and, with employment continuing to climb, people are likely less worried that they’ll lose their jobs in the near future as a result of the pandemic. Ortegren also notes that the economy overall seems to be doing better, as indicated by stock markets and people’s confidence in the markets.
Of course, whether the pandemic will actually change how people will spend and save in the future remains to be seen, she emphasizes.
The findings from the most recent wave of the survey are based on an online survey conducted Sept. 9, 2020, among 1,500 respondents, who each answered up to 21 questions (some were dependent on answers to other questions, so not all respondents answered all of the questions).
CARES Act: How Plan Sponsors and Participants Are Reacting
In relation to the CARES Act provisions, data from Principal shows that as of Aug. 31, only 3.2% of 401(k) plan participants with a coronavirus-related distribution (CRD) available have taken one for the period March–August 2020. The average amount taken for a coronavirus withdrawal is $16,500.
The data is based on active participants only with service by Principal and does not include Well Fargo Institutional Retirement & Trust.
The firm notes that loan requests are down 23% overall from this time in 2019, but the average amount requested is up 20%. In addition, the typical CRD profile is male, average 35-54 years old, and works in mining, manufacturing, accommodation/food service or transportation industries.
As a reminder, the last day to take the expanded CARES Act loan provision if the plan allows it was Sept. 22, while the last day to take a CRD is Dec. 31. Of course, these dates could change if Congress and the Trump administration reach an agreement on an additional stimulus package, which likely won’t be until after the election, if at all.
On a positive note, nearly all (99%) plan participants stayed the course in maintaining their retirement savings contribution rate. The report notes that this level has remained steady for the period for August 2019 to August 2020.
Of those who made a change, Principal notes that decreases in contributions slowed, but participants remain hesitant to increase them:
- less than 0.1% started deferring;
- nearly 0.2% increased deferrals;
- less than 0.1% decreased deferrals; and
- less than 0.1% stopped deferring.
Transaction activity remained low, with approximately 0.5% of participants initiating a transfer in August, which was comparable to August 2019, according to the data.
Transfer activity continues to favor more stable/conservative investments, while the top asset classes gaining net assets in August were bond, large cap and stable value funds.
Among plan sponsors, Principal notes that approximately 55% of plan sponsors have responded to the CARES Act communication, with the vast majority (93%) of those plan sponsors adopting the three CARES provisions—adding the special Coronavirus-related distributions (CRDs), RMD waivers for 2020 and increasing loan limits.
August plan amendments have slowed to nearly 70% less than those submitted in July 2020. In addition, approximately 1.1% have plan amendments to change the employer match since March 11, 2020, with 90% of those respondents stopping their employer match, while 6% reported that they added a match.
As for web and mobile activity, Principal’s data shows that average daily visits were consistent with July for web and mobile visitors combined, but 10% lower than June 2020. Mobile activity accounted for 35% of visitors in June, up steadily from 28% in January.
In addition, participant call volume is up 17% from the period August 2019 to August 2020, while call duration remains up nearly 20%, with the main topics including distributions, loans and withdrawals.
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