Before 2020, it was reported that Americans were struggling to save for retirement. What we didn’t want then was a big hit to the economy, but this is exactly what happened with the COVID-19 pandemic. Of all those who have lost jobs to the pandemic, around three-quarters will struggle to maintain living standards after retirement. Thanks to a Boston College study, we know this is 20% higher than before the pandemic.
From the same study, we also learned that increased unemployment means that around 55% of Americans aren’t saving enough for retirement.
A Growing Problem
Of course, this isn’t a new problem. In recent years, the cost of living has increased, wages have remained relatively stable, and more employers offer 401(k) accounts rather than defined benefit pension plans. With these three factors, Americans are struggling to save enough for retirement. Let’s not forget, some are only just recovering from the global recession a little over a decade ago.
If COVID-19 sticks around, we could face two recessions of the same force in 12 years. We’ve heard from plenty of elderly workers who have been laid off and now face retirement with insufficient savings. With the slim chance they have of getting a new job, even this is likely to come with smaller wages. While younger workers are in the same position with reduced hours and redundancies, some say that workers benefit from time. For many, they will get back onto the same path even with a redundancy now.
However, this doesn’t mean that current events won’t affect their retirement savings and plans too. Especially those who remain on unemployment for a period, it will require severe catch-up payments when older. Some won’t catch up, which means less Social Security, which is the most significant retirement income source for around half of all Americans over age 65.
Recently, the advice has been to tap into Social Security at age 62 when required. This might help short term, but it locks the individual into lower monthly payments (because the money is spread over a longer timeframe). With this, long periods of unemployment have the potential to cause lots of financial distress.
Dealing with Financial Issues
Since the start of the pandemic, the number of people who have filed for unemployment recently surpassed 45 million; the number of unemployed is still nearly 20 million. Though it might sound obvious, the first step for those struggling to make ends meet would be to do whatever you can to survive. Get help from food banks, apply for unemployment, borrow temporarily from friends, and reduce expenditures.
Once everything has calmed down, you can hopefully get a job. For a while, keep this survival mentality to start building retirement savings again and get into a comfortable position.
An American economist recently stated that unemployment was financially devastating and that an unemployment insurance system is a way forward. With this, those who need help will receive it while attempting to get back into the world of work.
