COVID-19 changed a lot of lives in several ways. Not only did millions of people lose their job in just a few weeks, but many who weren’t laid off had added expenses or income loss that impacted their lives. In addition, according to a Nationwide survey, 15% of Americans are postponing their retirement because of the consequences of the pandemic.
Many people who lost their jobs also lost access to their retirement plans, like 401(k)s.
Even those who worked throughout the pandemic were still financially hurt as employers instituted pay cuts or reduced and eliminated matching contributions. Recovering from the pandemic will take time, so many people are delaying their retirement and working longer.
Stock Market Did Not Postpone Retirement
As the pandemic continued through 2020, stock values plummeted, making investors panic, and millions of people delayed retirement as their portfolios were hit. Luckily, while stock values declined in the early days of the pandemic, the stock market recovered before the end of the year.
If an individual’s portfolio was recovered, it could have been because they had to pause on their retirement plan contributions for most of 2020, which means they need to work longer.
IRAs and 401(k)s
Many individuals planning their retirement before the pandemic have been unable to retire because of the financial hit they took in 2020. During the pandemic, individuals who were laid off, or those who had to use their retirement contributions and/or funds to pay for other things, will need to push retirement off a few years to fully recover.
Those who were laid off and not asked to return to work will likely have to find another job to continue with their contributions.
Those hoping to retire within the next six months to a year will need to consider delaying retirement until the overall state of their finances improves.
With fewer people working during most of 2020 and many still laid off or looking for new jobs, many individuals are dipping into their retirement fund to spend money on things they need right now, like their homes. While mortgage forbearance has been extended, it will eventually end, which means many people will need to pay their loans with money they don’t have.
As a result, many people will dip into any savings account or retirement plan they have so they can keep their homes, which means working longer to rebuild their retirement savings.
Individuals who want to move out of their homes when they retire may find purchasing a new home difficult because the cost of housing has skyrocketed, which means they may find themselves renting a home instead of buying a new one. Unfortunately, not only has the average home price gone up since the pandemic but so has the average rent, which means even more money will need to be taken from retirement accounts.
Those who were financially impacted by the pandemic were forced to take on debt to make ends meet. On top of dipping into retirement accounts, adding debt has put these individuals in a worse position because they now have to refund their retirement accounts and simultaneously pay off their debt.
What to Know About COVID-19 and Retirement
Determining if retirement is right for you depends on several factors, but the U.S. government has tried its best to lessen the impact of the pandemic.
In March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allowed Americans to tap into their retirement plan savings. While companies did not have to adopt the provisions, many did help their employees access their own money much easier to pay for necessities.
While this helped people when they needed it the most, they no longer have the necessary funds in their accounts to retire when they wanted. In addition, tapping into these assets may have compromised retirement portfolios with many older individuals without the ability to restore their funds.
As many Americans found themselves without jobs and money, they realized the necessity for better financial planning. While it’s almost impossible to plan a pandemic, there are ways to ensure the financial stability of yourself and your family.
Short-term events should not alter long-term planning, like retirement, and focusing on the present can be a mistake if individuals didn’t have to. Unfortunately, many people don’t have a large savings account or retirement plan, so their lost incomes put them in a dire financial situation.
If the pandemic has taught all of us one thing, it’s that we all need to manage money more carefully, especially when it comes to long-term goals like retirement. If you are financially set, consider donating to different non-profits, such as the American Heart Association, to help out other people that are in need during these troubled times.
When it comes to financial planning, you can benefit from an estate plan or a trust that ensures the financial security of yourself and your family.
Who Was Impacted the Most?
Adults with higher income were impacted the least because they had enough savings to cover themselves in case of an emergency like the pandemic.
Those who were the most impacted were lower-income adults. Many individuals who were living paycheck-to-paycheck were forced out of their jobs and unable to work during the pandemic, which had long-term consequences for their financial future.
Those who were already struggling before the pandemic will continue to struggle to try to build their finances back up, making retirement seem like a pipedream.
Another group most impacted by the pandemic are those in their late 40’s and 50’s. These are individuals who are thinking about retirement but have yet to reach the retirement age. Those who were laid off or took a pay cut are more likely to expect their retirement to be delayed at least until they recover what they lost.
What About Young People?
The pandemic didn’t delay retirement for decades from now. If you’re younger, it’s going to be easier to recover from a year of not making contributions to your retirement plan. The people’s retirement plans most impacted by the pandemic are those who planned to retire within a few years or less, and those who were short on savings before the pandemic and had to pause on retirement plan contributions.
About the Author
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.