Retirement Problems Didn't Start With COVID-19

As the pandemic wore on and the economic fallout worsened, survey after survey tried to quantify the impact on Americans’ retirements. However, a paper from the Center for Retirement Research at Boston College asserts that the pressures on retirement today are as bad as they were before the pandemic. Social Security, employer-sponsored retirement plans and the labor market for older workers have held up about as well as they did last year — meaning there is still work to be done to improve retirement outcomes.

Social Security

Alicia Munnell, director of the Center for Retirement Research at Boston College (CRR), and Anqi Chen, assistant director of savings research at CRR, dispute the Social Security actuaries’ revised Trustees Report, which “[characterized] the impact of the pandemic and recession as ‘significant.’”

Munnell and Chen acknowledge that many assumptions about the future of the program have changed as a result of the pandemic.

“Mortality is up, fertility and immigration are down, disability incidence is down in 2020 and then up for the next three years, unemployment is up, real wages are down then up, and real interest rates are down,” they wrote. However, the actual “impact on Social Security finances appears to be modest,” with the effects of the pandemic and ensuing recession washing out by 2025.

DC Plans 

Regarding employer-sponsored plans, “problems existed before COVID; COVID had little impact on retirement resources; and the pre-COVID problems persist,” they wrote.

Between 2016 and 2019, a period marked by strong markets and economic growth, the typical working household with a 401(k) saw balances increase by less than $10,000 to $144,000 in 2019.

That leaves them with just $570 per month in retirement, according to the report. Furthermore, only about half of households have any savings at all.

There are few options for decumulation, and retirees and sponsors resist the ones that do exist; zero percent interest rates that started in December 2019 have made it harder to save, according to the authors.

“COVID could have worsened the picture for employer-sponsored 401(k) plans if financial markets had collapsed, the recession had led to widespread 401(k) withdrawals, or employers had suspended the match, but these things did not happen,” the noted.

Labor Market 

Unemployment hit record levels in April 2020, but Munnell and Chen dispute the notion that it had a disproportionate effect on older workers. The Current Population Survey shows that employment for workers 65 and older fell around 11 percentage points between April 2019 and April 2020, and employment fell 15 points for the 55-64 age bracket.

That’s on par with the 12.3-point difference for workers aged 35-44. In fact, the biggest deterioration in employment occurred in the 25-34 age bracket, which dropped 20 points.

“This pattern of job loss might seem surprising at first, since older people are more at risk of health complications from the pandemic. However, an earlier study shows that older workers are as well situated as younger workers to have jobs that can be done remotely,” according to Munnell and Chen.