Americans have always struggled to save. Many live paycheck to paycheck, on the very edge of financial security. Historically, that savings shortfall has been all the more dramatic when it comes to saving for retirement.
But with the coronavirus pandemic and the havoc it has wrought on the economy, that retirement savings gap may worsen. Beyond the health impact, COVID-19 has created enormous uncertainty across the country. Market volatility has cut into retirement nest eggs for many; in the first three months of 2020, the average 401(k) dropped 20%. And a provision of the CARES Act that makes it easier to tap retirement accounts is likely to send those balances even lower in the months ahead. Unemployment has skyrocketed to record highs, hitting 14.7% in April—the highest level in recorded history. That means that only about half of American adults have a job today. It also means that Social Security’s coffers (which are dependent on payroll taxes) are taking a hit. Moreover, the recent CARES Act allows companies to delay Social Security payouts for up to two years. And while this doesn’t affect current beneficiaries, it highlights the pandemic’s impact on the already increasing Social Security funding deficit.
With all of this uncertainty, it’s not surprising that Americans are growing increasingly worried about their retirement prospects. According to the May 2020 Simplywise Retirement Confidence Index, 56% of Americans are more concerned about retirement today compared to how they were feeling about it a year ago. The survey also found that 69% of people in their 50s—who are nearest to retirement—are more concerned about retirement today.
The study, which was conducted as an online, random sample survey of 1,070 Americans ages 18+ between May 8-9, 2020, explored how people are looking at retirement, Social Security, and savings today, particularly in light of the current crisis. We break down our findings, from changing rates of postponing retirement to how people are drawing from retirement savings during the pandemic.
Major concerns around retirement today
For those not yet claiming Social Security benefits, financial concerns are the greatest anxiety as they think about retirement. An incredible 40% of respondents to the Simplywise survey reported that they do not believe they will be able to retire at all. Half of respondents are concerned they will outlive their savings in retirement.
Paying everyday bills, particularly medical bills, is a great anxiety. Over 50% of people in their 50s reported being concerned about their ability to pay for medical and daily living expenses in retirement.
Repaying lenders is another concern, with 28% concerned about having too much debit in retirement.
Over half of all respondents believe their quality of life will suffer after they begin collecting Social Security. For those not currently collecting retirement benefits, 58% believe those benefits won’t allow them to maintain the same quality of life they enjoy today. Looking at the average Social Security benefit—$1,503 per month in January of this year—it comes as no surprise. Especially given that, according to the U.S. Bureau of Labor Statistics, the average American spends $5,102 per month.
Indeed, the majority of respondents do not believe Social Security will cut it to pay their monthly expenses. On average, people answered that they expected Social Security to pay less than half of their monthly bills in retirement. What’s more, 59% of respondents not yet collecting benefits are concerned that Social Security will dry up all together by the time they retire.
Of course, even beyond financial concerns, there are other realities to face in entering the next phase of one’s life. Twenty five percent of respondents are worried about feeling bored or lonely once they retire. Yet the financial anxieties of making basic payments trumped all other concerns.
Given those financial concerns, one’s own savings and income is more important than ever to get through the supposedly “golden years”. And yet savings, always hard, has gotten even harder today with the crisis. One out of three respondents saved $0 for retirement in the last year.
For women, those numbers were even higher. A whopping 37% of women saved nothing for retirement this past year—and exactly 50% of women saved less than $500 for retirement in the last year. The numbers were similar for low to middle-income individuals. Over half of respondents whose annual income is below $50,000 saved $0 for retirement in the last year.
Should I retire early or delay benefits?
The question is what all of this means for Americans who are nearing retiring age today. Some Americans are interpreting the current crisis as a call to postpone retirement. A full 26% of respondents said they would postpone stopping working altogether. Separately, people are also considering delaying retirement benefits. One in five (23%) respondents in their 50s and 60s are now planning to delay Social Security benefits. But even more Americans are considering retiring early. In fact, one in three (33%) survey respondents in their 50s and 60s are planning to claim their Social Security retirement benefits early. And this is particularly true for those who have recently lost jobs and need to ensure health coverage and income from benefits.
In fact, there are important factors to weigh in considering when to claim. One’s monthly benefit from Social Security can considerably vary depending on the age chosen to start benefits. For example, if you claim your monthly benefit before your Full Retirement Age (and you can start claiming your Social Security benefits as early as 62), your monthly benefit will be lower. However, you will receive it for a longer period of time. If you claim your monthly benefit after reaching your Full Retirement Age, you’ll receive what is called “Delayed Retirement Credits”. DRCs translate to a much larger monthly check (though for a shorter period of time).
So the 23% of Americans making the decision today to delay retirement and stay in the workforce will claim higher amounts when they do collect. Specifically, their benefits will increase 8% for every year they wait.
Of course, even when one does officially retire and begin claiming benefits, that does not necessarily mean the end of work. Actually, the majority of Americans are planning to work throughout retirement today. Of those who are in the workforce today, 67% plan to continue working after claiming Social Security. Fifty-six percent of women plan to keep working, and 58% of men. For those recently laid off due to COVID-19, one in four have changed their minds in the last year and now believe they will have to work into retirement.
Of course, while it may not be what one imagined, working during retirement is not necessarily a bad thing. Working in retirement can provide more than a paycheck; it gives seniors structure, job satisfaction, and opportunities for social interaction.
Americans squeezed across the board
The reality is that the economy today is hurting Americans across the country, regardless of where one is from or how much one makes.
For starters, job security is of course a grave challenge for Americans today, which may likely continue. Thirty percent of respondents believe it is likely they will be laid off or have their income reduced within the next six months. Half of those currently furloughed believe they will lose their jobs or have their income cut by the Fall.
Given the current economic climate, one in ten respondents are planning to dip into their emergency savings. And one in five believe they will have to draw from their 401(k). More, half of those who recently lost their jobs are now planning to withdraw from their 401(k).
Social Security beneficiaries, many of whom are dependent on their fixed income and retirement portfolios, are also feeling squeezed. Of beneficiaries today, 11% are now considering selling their home to cover their expenses. Another 10% of beneficiaries are considering refinancing their home to cover expenses today.
Of course, some Americans see an opportunity in the down economy. While over 41% are now planning to save more in their bank accounts, 21% of respondents are planning to invest more money in the stock market today. Women remain more fiscally conservative, however. Of female respondents, 45% plan to save more today, versus 37% of males. Additionally, just 17% of women plan to buy stock today, compared to 27% of males.
But the truth is that a majority of Americans are struggling. Four in ten respondents answered they would not have the means to come up with $500 in cash today. They reported that they would either have to sell something or go to family and friends for a loan to get that kind of cash right now.
So much has changed in the last two months about the way we live our lives, and indeed, what life even looks like in this new reality. The human toll from the coronavirus continues to climb. Some states are reopening, while others remain closed for what seems an indefinite amount of time. Policy changes meant to ease the burden on strained businesses and struggling American citizens can feel confusing to navigate. Uncertainty seems to be the only certainty.
So it is natural that many Americans are feeling at best concerned and at worst overwhelmed in thinking about and planning for their futures today. Yet that is why it is more important than ever to educate oneself on the options for retirement
Americans who are not yet retired but whose finances have been impacted by the pandemic can use this time to review their expenses. Determine how much cash will be needed in retirement, and make any necessary adjustments to savings and portfolio asset allocations. “For those who are eligible but not yet on Social Security, while we don’t necessarily recommend taking benefits earlier, this is a good time to consider how to maximize your benefits,” says Simplywise CEO Sam Abbas. “That means understanding and calculating your options for earned benefits, spousal benefits and survivor benefits.” The best way to understand what you’re owed is to use a comprehensive Social Security calculator and checklist.
Things are changing rapidly – but staying informed, aware, and empathetic with yourself and those around you will ensure that your life today and future planning remain on track.
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