How does this have an effect on your retirement planning?
The Covid-19 pandemic has far-reaching financial implications. It is important to understand the impact of the pandemic in order to mitigate additional financial consequences that could develop in the future. One major revelation is that the pandemic has exacerbated the growing economic inequality that our society has experienced over many decades. The negative effects of the Covid-19 pandemic were greatest for those who were already challenged in building their old-age provision. And recovery from the effects of the pandemic can take many years.
The Society of Actuaries (SOA) recently published a study entitled “Financial Perspectives on Aging and Retirement Across the Generations,” which provides insights into how retirement across generations fits into Americans’ financial priorities. The study also provides insights into how the Covid-19 pandemic has impacted perceptions of financial security and retirement savings, and how priorities have changed since the study was first iterated in 2018. The key results of this study can help us understand how to strengthen financial security for the future.
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COVID-19 Pandemic and the Context for Retirement Provision
The Covid-19 pandemic did nothing to change the need for pension planning for the working-age population, but the economic and employment climate that emerged from the pandemic significantly increased the challenges for those planning for the future. In particular, changes in employment – whether through job loss, people leaving their jobs to look after their families, staying home for their own safety or the safety of their loved ones – are a major driver of pandemic-induced changes that reduce pension security to have. Unemployment in the US is still recovering, at 6.1% in April 2021, down from 3.5% in February 2020 before the pandemic, but below a staggering 14.8% in April 2020 during its peak.
The challenges that arose from the Covid-19 pandemic were superimposed on the existing challenges of old-age insurance. The background to retirement security encompasses a mix of longer-term issues including the lack of universal access to and use of retirement programs, significant individual financial fragility, growing debt, low interest rates, gaps in financial literacy, an aging society, and growing times of retirement.
The equity markets have generally performed very well, but with significant volatility. The stock market results benefited the Americans who held such assets. These were primarily people at the higher end of the economic scale, those who could tolerate the volatility, and those with longer-term jobs that included defined contribution plans with larger account balances. Many American middle-income families have most of their wealth in their homes and / or employee benefits, and it is very common in such families for their housing wealth to exceed their financial wealth by the time they reach retirement age.
Retirement Savings Insights and Concerns
Impact of the Covid-19 pandemic on future pension entitlements
The Covid-19 pandemic is likely to have very different effects on future retirement ages depending on whether households have had an employment disorder, how secure their future jobs are, and how their finances are affected. For some people, government aid packages made up part of their financial losses, but others have a different story. The SOA research found that 41% of millennials and 39% of Generation X report that the Covid-19 pandemic had “some or significant negative financial impact” compared to late boomers (33%), early boomers (29%) ) the silent generation (25%). In addition, Millennials said they had shifted their priority to short-term financial goals. Almost two-thirds (64%) of millennials said they were more likely to plan financially for less than a year in the future. It is expected that many of those who have reported negative financial effects will find that this is reflected in retirement provision, even if they have not yet focused on that link.
Although the pandemic did not significantly increase concerns about retirement risks in general, many respondents are concerned about the impact the pandemic has on their retirement savings. This concern is greatest for Millennials (57%) and Generation X (49%), who are very or more concerned about how the pandemic will affect their retirement savings, especially in terms of maintaining decent living standards and insufficient money Pay for adequate health care. This concern diminishes for older generations (40% Late Boomers, 37% Early Boomers, 29% Silent Generation).
Expectations of old-age security
About 6 in 10 of all generations say they are on the right track when planning for a financially secure retirement. This despite the fact that 47% are concerned about the impact of the Covid-19 pandemic on their retirement savings – with the concern being greatest among millennials. Two thirds of early boomers say they feel they are on the way to financially secure retirement. Almost 6 in 10 of the younger generations agree.
Retirement planning can be linked to attitudes towards finance in general. The assessment of the financial situation of many respondents is predominantly positive: 40% are optimistic and 34% say they are in control. This optimism generally increases with age.
When reviewing these results, it should also be remembered that there are gaps in financial literacy. This research also shows that many individuals have a short planning horizon. Other SOA research shows that people tend to overestimate their financial situation. Previous research also reveals many gaps in retirement planning, including the tendency of some people to focus primarily on expected expenses, believing that events like long-term care will not happen to them. While the survey gives a picture of perception, it does not provide an analysis of how well prepared respondents are for retirement.
Expectations at the time of retirement
The survey results indicated changes in pension plans. Four in 10 Millennials and 3 in 10 Gen Xers and Late Boomers have changed or considered moving when they want to retire – with about 60% of these people postponing retirement. Millennials, Gen Xers, and Late Boomers all report they retire when the median age is 65.
The Covid-19 pandemic had a very mixed financial impact on Americans. Those who have had a significant career break are likely to feel the impact on their retirement savings. Many others will have no effect and some will save more. Regardless of your financial experience with the Covid-19 pandemic, this is a good reminder for everyone to take steps now to ensure your financial security for retirement and to minimize potential future financial difficulties.