COVID-19 could make the Americans who have the toughest time saving for retirement even less likely to save, and even less like to use the retirement savings they have to buy annuities.
Three economists have reported on research supporting this conclusion in a new working paper published on the National Bureau of Economic Research website.
“The COVID-19 pandemic is wreaking substantial and immediate damage to health and well-being,” the economists write. “This research suggests that the pandemic will also have longer-term effects, altering peoples’ willingness to save for retirement and convert part of their retirement nest eggs into annuities.”
The kinds of younger, sicker, lower-income, more poorly educated people who are the most likely to run out of money due to COVID-19 are the ones being pushed hardest to reduce retirement savings and to avoid annuitization, the economists write.
A working paper is a research paper that has not yet gone through a fully peer review process.
The economists — Abigail Hurwitz, Olivia Mitchell and Orly Sade — used a survey to ask U.S. residents ages 35 to 83 hypothetical questions about savings behavior and demand for annuities and similar longevity insurance products.
Survey Role Playing
The economists then asked the survey participants to advise a hypothetical single individual, age 60, with no children, about how to withdraw retirement savings, and a hypothetical single individual, age 40, with no children, about whether to increase retirement savings.
The survey team also collected information about the survey participants’ demographics, financial literacy, health, perceptions about COVID-19 risk, and perceptions about COVID-19 financial risk.