Coronavirus Multi Generational Threat to Retirement Expectations

The recent volatility in the financial markets, a looming recession, and the economic turmoil caused by the COVID-19 pandemic has shattered the confidence of many in their financial plan’s ability to provide for a comfortable retirement. How are folks to pivot post-pandemic and recoup their losses?

Businesses are slowly reopening, schools too, but even as employees return to work, the economic downturn will have lasting effects on their retirement prospects. Young workers may be on the job for longer than they'd planned while older workers confront new challenges regarding their savings and security.

A recent Transamerica report provides snapshots of the retirement outlook for 3 generations of U.S. workers:

Millennials (born 1979 to 2000) have entered the workforce with higher levels of student debt than previous generations. Those who have invested in their retirement have enjoyed one of the longest-running bull markets in history. The pandemic marks the first major market downturn they have experienced. Social Security may or may not be there for them when they are ready to retire and their primary source of retirement income may be through retirement accounts.
• Generation X (born 1964 to 1978) had access to 401(k) plans for the majority of their working careers, but many are behind on their savings. They are financially strained raising children and caring for aging parents simultaneously, while also juggling their careers.
• Baby Boomers (born 1946 to 1964) have less time to financially recover before they retire. Planning to work longer even before the pandemic, few have a backup plan if forced into retirement unexpectedly.

What are the prospects in the workplace? There is likely to be a boom in the employment of young Millennials, at the expense of employment of the Baby Boomers. Older individuals are particularly vulnerable to this virus. As businesses reopen, the most problematic jobs will be those involving face-to-face interaction, which older workers may not feel safe pursuing. Many retirees without enough savings will be finding it hard-to-impossible to continue to supplement their income by working. With investments down, many Baby Boomers will have even less savings than they had before.

Are 401(k)s getting squeezed? You bet. Many businesses that provide matching contributions to their employees' retirement plans have reduced the matching contribution or suspended it. According to the International Foundation of Employee Benefit Plans (IFEBP), many employers reported that they had not yet made changes but were considering doing so.

Even though the CARES Act allowed employers to give employees easier access to pre-retirement withdrawals from 401(k) and similar plans, IFEBP found that:

• 61% of employers were now letting workers delay, for up to one year, making payments on retirement account loans that originally required payment from March 27 to December 31, 2020.
• 48% of employers had temporarily increased defined contribution plan loan amounts to the new maximum of 100% of the vested balance, up to $100,000, versus a pre-pandemic maximum of 50%, up to $50,000.
• 15% of employers saw an increase in the number of employees who have taken hardship withdrawals from their defined contribution plans.
• 12% reported an increase in employees taking plan loans.

Easier withdrawals may be a lifeline for workers facing financial hardships, but folks must weigh the pros and cons because that money is meant for retirement. Taking money out of your retirement savings now, especially in a volatile market, jeopardizes future retirement security. If you must, read our article here about how to get back on track: Best Way To Repay Your 401(k). 

The Employee Benefit Research Institute sees earlier retirement for some, citing evidence showing that the pandemic might actually be causing the retirement horizon to contract for Boomers. The National Bureau of Economic Research found that the pandemic had led to a wave of earlier-than-planned retirements, due to the high sensitivity of seniors to the COVID-19 virus. Decisions were made to either leave employment earlier than planned, or not look for new employment after losing a job in the crisis.

No matter what your age, we suggest taking these 6 steps to improve retirement prospects, help mitigate the pandemic's effect on retirement security, and meet the challenges presented by the negative economic effects of the pandemic:

1. Get help with financial planning.
2. Create a budget, prioritize expenses, set short and long-term goals.
3. Develop or revisit your retirement strategy to improve fiscal health.
4. Maximize employee benefits and access to health care insurance.
5. Investigate flexible work arrangements to help at a time when you are taking on added personal responsibilities associated with caregiving and home schooling.
6. Stay aware of local and federal relief programs, stimulus funds, and small business loans, etc.

Workers' ability to achieve a secure retirement will depend on the return of a robust employment market, stable financial market, and the preservation of safety nets such as retirement accounts. While some economists predicted a rash of earlier-than-expected retirements due to the pandemic, some expect that older workers facing greater economic uncertainty will try to work past normal retirement age. If employees keep investing, as markets recover, so will their retirement savings.

CONTACT US: Get educated about potential impact of early distributions so you can make an informed choice. Your TFG financial advisory team will all work together to assist you in securing your and your family’s future. Feel free to contact me, Cory Lyon, Financial Advisor, directly at 561-209-1120, with any questions regarding financial planning for your estate. At TFG, we believe in customized investment portfolio design and personalized asset management. I act as a fiduciary for my clients.

TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.