Retirement worries keep rising: Reports

There is no shortage of things to worry about amid the COVID-19 crisis --contracting or spreading the virus, economic uncertainty, and social and political strife.

Add retirement security to that list.

While that has been a worry at the top of working-age Americans’ minds for years, the crisis seems to be making things worse, several recent reports indicate.

This year’s CARES Act gives affected workers the option of dipping into their 401(k)s or borrowing from them, though doing so can have potentially severe economic consequences later in life if those funds aren’t replenished.

Forty-four percent of people recently surveyed by Charles Schwab said retirement security is a significant source of stress, up from 38% who said so in 2019. Other top stressors are stock market volatility (33%) and job security (25%). The survey included 1,000 interviews in May and June with 401(k) participants 25 to 70 years old.

There are real consequences for people near retirement. A separate report last week from the Alliance for Lifetime Income found that about 20% of people ages 56 to 75 are delaying retirement because of the pandemic, equivalent to about 3.2 million Americans.

About 70% of people in that age group said that they are more pessimistic about their retirement prospects than they were before the pandemic, according to the report. More than half of those surveyed said they are rethinking their retirement plans, such as when they will retire and how much money they will need to do so. The group commissioned a survey of 1,260 people in June for that report.

“[Participants] want control. They want predictability. They want to be able to talk to somebody that they can trust,” said Warren Cormier, executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center, speaking Wednesday at an online conference sponsored by the organization and the Spark Institute. “Right now the participant is kind of stuck in this negative vortex … and they don’t know how to get out.”

One long-term effect the pandemic will have is to change attitudes about investment risk, and it will take years before people regain confidence in the stock market, Cormier said.

“The pandemic is impacting our most basic needs,” Megan Yost, vice president of communications at Segal Benz, said at the DCIIA event. The effect on job security, health care, food and shelter “is impacting participants at a deeper and more visceral level than in previous economic crises.”

To help address that, plan sponsors should be communicating as much as possible with participants, panelists said. That means reaching out to them via multiple channels, including email and in apps, with relevant messages, they said.

“People are much more engaged with their finances during points of inflection,” Yost said. “They may be looking for resources or someone to talk to.”

Employers should consider how their workers are affected, and that can vary by geography and other factors. They shouldn’t assume that because a worker hasn’t been laid off that they are doing well, as a spouse or significant other might have lost a job, Yost said.

“We are seeing a significant increase in the frequency of [participant] logins, which generally you’d be happy about,” Alicia Hartjen, head of product development and participant education at SS&C Technologies, said during the DCIIA panel. But checking a retirement account balance daily “can show a lack of confidence in their strategy or what is happening with their money.”

Conversely, some participants are doing better during the pandemic than they were previously, Hartjen said. Because people have been cooped up at home, discretionary spending on travel, entertainment and food has declined, in some cases forcing people to save more than they normally would, she said.

“There is a population of individuals who are seeing a little more savings, and maybe they’re able to see their emergency savings go up, or they’ve been able to pay down some debt,” she said.

The pandemic is reportedly taking a smaller economic toll on people who have been saving well for retirement, according to a survey from Principal. Among about 1,700 people who are saving more than $17,100 per year in their retirement accounts, 98% said they are comfortable with their financial situations, up from about 97% who said so last year. Similar percentages of those savers said they are doing a good job in preparing for retirement, according to Principal.

Still, 26% of those people said they are concerned about market volatility, the survey found.

“In crisis, one of the first things to shut down is critical thinking,” Cormier said. That is why communication from the plan is important, he said. “It’s very rare that in the absence of communication people assume that everything is going well.”

Guidance on plan disbursements and loans can be particularly important, given the provisions of the CARES Act. Although only about 0.5% of 401(k) savers are likely to seek that relief, doing so could have a big impact on their retirement assets, according to a July 30 report from the Employee Benefit Research Institute.

For workers who take COVID-19 distributions from their plans, the long-term effect on their retirement assets is low if the amount taken from the account is paid back within three years, EBRI found.

“However, we see potentially significant reductions in retirement balances as a multiple of pay when employees take full CRDs and fail to pay them back. This is especially true for older age cohorts,” EBRI’s report read.

Assuming that those workers also dip into accounts early in the future, with emergency provisions from Congress as new crises arise, “the overall median reduction in retirement balances as a multiple of pay at age 65 is 54%,” according to the report.