The Impact of COVID-19 on Employees’ Retirement Savings

Posted on Oct 20, 2020

The coronavirus pandemic has had a major economic impact across many industries, causing layoffs, furloughs, and widespread unemployment. A report released in May 2020 by the Transamerica Center for Retirement Studies presents an unsettling picture of what this means for the retirement prospects of three generations in the workforce: Baby Boomers, Generation X, and Millennials. Even prior to the pandemic, experts warned that many American workers were not saving enough for retirement. In many cases, these are the same workers hit the hardest by COVID-19.

In “Retirement Security Amid COVID-19: The Outlook of Three Generations 20th Annual Transamerica Retirement Survey of Workers,” 23 percent of workers said that their confidence in their ability to retire comfortably has declined as a result of COVID-19, with 58 percent reporting an impact to their employment situation such as a salary decrease, furlough, layoff, or reduced work hours.[1] As a result of financial stress, nearly one in five workers planned to or had dipped into their retirement savings, either taking out a loan or an early withdrawal. Millennials were more likely to dip into their retirement accounts than older workers.

Those in the Baby Boomer generation are most reluctant to take a loan or withdrawal from their retirement accounts, and they are a vulnerable age group for a number of reasons. In addition to the physical risk - since they are more susceptible to becoming seriously ill if infected with COVID-19 - they are also financially vulnerable during this period of market volatility. They can’t afford big losses in their 401(k)s or for their savings to be wiped out when they are so close to retirement. In addition, they are also more likely to carry heavy financial responsibilities such as paying college tuition for their children or caring for aging parents. Many were also hit financially during the Great Recession in 2008 and took years to recover from the economic impact.

Transamerica’s report states that employers and their retirement plan providers play an important role in educating and motivating workers to save for retirement, understand their investment options, and know how Social Security works. Education is perhaps more important than ever given that many employees of all age groups underestimate what their expenses will be during retirement and overestimate their Social Security benefits.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.