Could the coronavirus pandemic negatively affect your retirement plans?

retirement plans coronavirus
Photo via American Advisors Group/Flickr (CC BY SA 2.0)

When the coronavirus pandemic first broke out, the stock market saw hugely negative downturns, with ripple effects that continued throughout the second quarter of 2020. And now the big question that hangs in the balance is how this may impact the retirement plans of many Americans.

According to a report published by TD Ameritrade on the financial retirement impacts of COVID-19, six in 10 Americans said they had regularly contributed to their retirement savings and had been on track with their retirement plans before the pandemic. Now just six months after COVID-19 was first discovered in China, seven in 10 Americans anticipate the pandemic impacting their retirement plans, with Generation X expecting to be hit the hardest.

By June, stocks had recovered most of their losses since the March crash, but about 30% of employed investors believe that it’s “very or somewhat likely” that they will be forced to delay their retirement age as a result of the recent economic catastrophe, according to a release from Wells-Fargo. Similarly, 29% of Americans think it’s now likely that they will need to work “more than they intended” into their retirement.

The poll, which took place from May 11-17, was conducted among adults in a household with stocks, bonds, or mutual funds of $10,000 or more in retirement accounts. Of the total respondents, 60% reported annual household incomes of $90,000 or more, with the median age of the non-retired investor being 45 years old.

While the panic is certainly understandable, experts think this might be a momentary blip that the economy will overcome—similar to the 2008 financial crisis.

“Folks are worried that they’ll have to delay retirement to offset recent stock market losses,” Dan Barry, regional president at Wells Fargo Advisors, told USA Today. “But market downturns are inevitable. If folks are concerned, they should stay the course and rebalance their portfolio because markets have proven over time that it pays off to remain invested.”

“It is a matter of when, not if [market downturns] will happen,” Barry said. “Having a comprehensive, long-term investment plan is critical to effectively weathering market downturns and preparing for the ‘what if’s’ of retirement.”

Sixty-four percent of investors now say that they are considering setting aside more money in an emergency fund as a result of the coronavirus—while nearly half are likely to spend more time creating a long-term financial plan.

Why older workers may be more harshly impacted

Gen-X, those born approximately between 1965-1980, might be feeling the most panic. But experts believe the pandemic will have the greatest impact on the retirement plans of many older working Americans, including those Baby Boomers who are still employed. Though an early retirement may be voluntary in some cases, others may be forced into it due to job elimination or unavoidable health risks.

As the New York Times points out, the duration of an individual’s active working life is one of the most important factors affecting retirement security. By working longer, Americans can save more money and receive additional years of employer-subsidized health insurance—as well as increasing annual Social Security benefits.

For example, those filing for Social Security at 62 (the earliest age that one can collect) will receive 75% of their annual full benefit, and for every 12 months working past the base retirement age nets an additional 8%, until the age of 70. 

“It’s double jeopardy for older workers as businesses open up,” Tricia Neuman, director of the Medicare policy program at Kaiser, told the Times. “If they return to work, they risk getting seriously ill due to COVID-19, but if they stay home, they may forfeit their earnings. For older workers who were hoping to work long enough to collect full Social Security benefits, the decision to stay home could have lifetime financial consequences.”

Though many older working Americans can work remotely during the pandemic, 30% of workers between the ages of 55-64 have physically demanding jobs that require being onsite. That percentage rises to 40% for Black and Latino workers.

Sources: USA Today, NY Times, Wells-Fargo, TD Ameritrade

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