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Retirees across the United States were already overwhelmed and underprepared for their futures before the coronavirus, but uncertainties about the health-care system and economy are making it harder to plan ahead. There may be some relief in sight.
The good news: COVID-19 could spark numerous outcomes that improve retirement security, according to a paper distributed by the National Bureau of Economic Research. Health insurance and pensions may be disassociated from employers, so that people aren’t at risk of losing their insurance or cutting their retirement savings in the event of a job loss, said Olivia Mitchell the researcher behind the paper and a professor at the University of Pennsylvania.
See: This is how much you need for retirement — and how COVID-19 will change that
Policymakers may also assist in financial decision-making by providing consumers with better data around financial products and pricing. Safety nets may be bolstered, to prevent people who lose their jobs from falling into dangerous situations. In her analysis, Mitchell suggests a few ways in which the retirement system can be rebuilt and made better through pension and health care design.
The bad news: Society isn’t there yet. Government and health officials are still not sure when this pandemic will end and a “new normal” will begin. The retirement industry pre-COVID-19 may have been optimistic, especially as markets had significantly rebounded from the 2008-09 financial crisis, Mitchell wrote. The government had passed sweeping retirement legislation to boost retirement security in December too. But the pandemic, which has killed more than 100,000 people in the U.S. alone, has derailed much of that progress.
The after-effects of a pandemic can last for decades, as seen in prior events, Mitchell wrote in her report. Meanwhile federal debt levels are rising quickly and the employment to population ratio in the U.S. dropped from 60% to 52% alone between January and April 2020.
Pensions may suffer from underfunding — many of which already being at-risk — and it will take years before investment losses bounce back. The CARES Act made it easier for savers to withdraw more or take loans from their nest eggs without penalty, which could result in less money when they retire. While some may retire sooner than anticipated, others may have to prolong their careers until they have enough saved to last their lifetimes, Mitchell said. “Some may retire early and claim their pensions if they are old enough to do so, rather than confront what will likely be massive unemployment for some time to come,” she wrote. “In so doing, their benefits are likely to be reduced due to early claiming, portending ill for wellbeing at later ages.” Some workers may choose to “phase into” retirement, by downshifting to part-time or participating in the gig economy while mostly retired.
The effects on Social Security are also unknown. The program faces insolvency in the next 15 years, at which point beneficiaries would receive a reduction in the payments they’re owed. Social Security relies on numerous economic factors, including fertility and employment, which have been rocked by the coronavirus. That, coupled with longevity trends, could lead to fallouts within retirement systems around the world as people age and rely on the system as a major source of income, Mitchell wrote.
Also see: Here’s how you will get information about your 401(k) plans in the future
The economy has suffered record levels of unemployment, and businesses across the country — especially small businesses — are reeling from government-issued lockdowns. Many elderly Americans may also be pushed into poverty, and all earners — from low to high — will feel the rippling effects of the pandemic, in the form of lost investment income or unemployment, researchers at the New School found in an analysis.
Financial industry organizations have proposed ways in which the government can assist Americans in overcoming retirement planning challenges, especially in light of the coronavirus crisis. Some suggestions include expanding contribution limits, so that savers can catch-up for times they were unable to invest; easing access to insurance products, which could assist in creating guaranteed income in old age; and strengthening financial literacy, so that people are empowered to make the right decisions for themselves and their futures.
