Financial Planning, Retirement, Economy

The Pandemic’s Effect On Older Americans’ Finances

9/23/20 12:00 PM

Some recent retirees appear to be handling the economic disruptions of the coronavirus rather well, according to a new survey conducted by Transamerica. For example, 75 percent of respondents said that their overall level of confidence in their ability to maintain a comfortable lifestyle throughout retirement has not changed significantly compared to just before the pandemic hit, and four percent even reported that their old-age financial optimism has improved this year. Such responses are not too surprising since these individuals had for the most part left the workforce prior to the COVID-19 outbreak, and therefore were already living off of their retirement assets and other non-employment income sources.

Three-quarters of respondents also said that if they were negatively impacted by the coronavirus they could rely on their normal savings and withdrawals from retirement accounts such as a 401(k) or IRA to help weather the financial setback. Another likely reason why retirement confidence appears to have held up well, at least in this particular poll, is simply because the survey was conducted during the summer after the growth rate in new virus cases was already in decline, the destructive lockdowns were being lifted, the $1200 relief checks under the CARES Act had been distributed, and the new bull market for equities was well under way. Some retirees of course have not fared so well this crisis, and for many of these individuals it is because they were not actually ready to retire. Indeed, millions of Americans lost their jobs as a result of the lockdowns and other efforts to stem the spread of the coronavirus, but older workers were hit particularly hard because they are in the age group that is both more sensitive to the virus and statistically less likely to have the skill set required to work remotely.

Potential evidence of this has been seen in our regularly updated Economic Chartbook, which among other things showed that 2020’s labor force participation decline has by some measures been much larger for older Americans and that their likelihood of telecommuting during the crisis has been lower. A recent New School analysis similarly found that the employment hit has been more severe for older Americans this year than during the “Great Recession,” and another academic study similarly observed that “the share of Americans not actively looking for work because of retirement increased by 7 percentage points between January and early April of 2020,” adding that “with the high sensitivity of seniors to the COVID-19 virus, this may reflect in part a decision to either leave employment earlier than planned due to higher risks of working or a choice to not look for new employment and retire after losing their work in the crisis.” At another end of the spectrum there are older Americans who although able to keep working would prefer to be retired but have instead been forced to delay such plans due to the pandemic.

A new Voya poll, for instance, found that more than half (59 percent) of employed Baby Boomers are now planning to work in retirement as a direct result of the COVID-19 outbreak. One of the key reasons respondents said they intend to continue working in old age is to have a “safety net to cover unexpected costs and prepare for market volatility.” Perhaps the main takeaway for younger Americans should be that a lot of the above-mentioned challenges many older people experienced this year might have been avoided or at least better managed with a larger savings cushion. Moreover, 2020’s economic shock should provide more motivation to set aside as much money ahead of time as possible for both retirement and emergencies. The earlier one can start the better, and taking full advantage of 401(k)s, IRAs, and other tax-advantaged savings vehicles can help greatly. Additional assistance is available by regularly working with a professional financial advisor to make sure that you remain on track to achieve the retirement lifestyle you deserve after decades of hard work.



Sources: TCRS, NBER, The New School, Voya Financial

Post author: Charles Couch