Covid-19 hasn’t had a major impact on most Americans’ retirement prospects, primarily because those hardest hit by the pandemic-induced recession are lower-income workers who are less likely to have retirement assets, according to new research.
Separately, a new survey reveals that three in 10 participants in retirement-savings plans increased their contributions in 2020, often motivated by calculations of their projected income in retirement.
Here’s the latest Barron’s roundup of retirement-related news and research.
Researchers: ‘Covid-19 Is Not a Retirement Story’
In terms of retirement savings, the pandemic has changed little for workers in the upper half of the income distribution, according to a paper from the Center for Retirement Research at Boston College. These workers are more likely to be able to work remotely, so they have suffered fewer job losses and haven’t had to tap into their 401(k) or similar retirement accounts, researchers say.
Though the Cares Act included provisions that made it easier for Americans to dip into their retirement savings, most workers have refrained. Among retirement plan sponsors that offered coronavirus-related distributions, only 7% reported that this option was used by more than 5% of participants, according to the paper.
In addition, only 5% of retirement plan sponsors suspended or reduced their contributions in 2020, down from the 20% that did so following the 2008 financial crisis, researchers say. Workers saw their 401(K) balances shrink in the spring as the pandemic raged, but the stock market has recovered strongly, and workers with good jobs have continued to save.
Meanwhile, about half of all households approaching retirement don’t have any retirement savings, the paper says. So, while lower-income workers were the most likely to lose their jobs due to the pandemic, it didn’t substantially impact their ability to save for retirement, researchers say.
“It’s a story of the haves and the have-nots,” said Anqi Chen, assistant director of savings research at the Center for Retirement Research and co-author of the report. “The people who were more likely to lose their jobs, the lower half of the income distribution, they were also less likely to have those [retirement] assets to tap into.”
Chen said the pandemic led to an “employment recession,” not a “financial recession,” like in 2008, “so that’s why it’s having a much smaller effect on retirement balances. But that’s not saying that the retirement system is working as it should. There are problems with the existing retirement system, but they’re not Covid-induced problems; they were there before.”
Survey: 3 in 10 Savers Increased Contributions in 2020
A TIAA survey of participants in employer-sponsored retirement savings plans found that 31% increased their contributions in 2020. The most commonly cited reason? Dissatisfaction with projected retirement income.
The survey by the Teachers Insurance and Annuity Association of America, conducted Oct. 26 to Nov. 2, polled 801 workers participating in 401(k) plans, 204 workers participating in 403(b) plans, 251 sponsors of 401(k) plans and the same number of 403(b) plan sponsors.
Having calculated their projected income in retirement was a motivator for 48% of those who increased their contributions last year for a reason other than out of habit, making it the most common reason cited by participants. Participants were allowed to select multiple reasons for increasing their contributions, including information found on plan statements (35%), information from another source (28%), guidance from an employer or plan provider (21%), meeting with a financial advisor (19%), and seminars for employees at work (15%).
With people living longer than in the past, workers are concerned about outliving their assets, said Tim Walsh, senior managing director at TIAA.
The survey also found that 72% of participants said it would be “extremely valuable” or “very valuable” to have annuities available through their retirement plans, and 70% of plan sponsors agreed. The 2019 Secure Act gave companies more leeway to include annuities in their retirement plans.
Walsh said that workers’ growing interest in annuities is part of a broader desire driven by the pandemic for safety and security. “Longevity risk really is probably as big a risk as market risk for a successful retirement-plan outcome,” he said. “I think that’s a huge part of it – participants want to feel safe; they want to feel secure.”
Write to [email protected]