Retire Better: Forget about the future: Americans are doing whatever it takes to get by today

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The Delta variant is a painful reminder that we are not out of the woods on the COVID-19 pandemic. Let me add my voice to the chorus of those urging you to get vaccinated—both shots—if you haven’t already. If not for yourself, then for those around you. 

We are also not out of the woods in terms of the financial stress that millions of Americans continue to feel from the pandemic. 

The latest evidence of this comes from a new study out Thursday from the Nonprofit Transamerica Center for Retirement Studies (TCRS), which serves up a variety of bleak data points. The full report is here. 

“Workers are weathering a public health crisis and contending with fears about the virus and vaccinations, concerns for family and friends, employment impacts, and financial setbacks,” said Catherine Collinson, chief executive and president of Transamerica Institute and TCRS.

For starters, TCRS’s report—“Living in the COVID-19 Pandemic: The Health, Finances, and Retirement Prospects of Four Generations”—notes that in financial terms, the pandemic cut across a wide swath of the country. Some 43% of all workers, it says, have experienced one or more negative things, including; 

  • Reduced hours: 27%

  • Reduced salaries: 14%

  • Furloughs: 10%

  • Layoffs: 8%

  • Retired early: 4%

The first four of these have hurt younger Americans disproportionately (I’ll get to the “retired early” category in a moment). The study shows that 59% of Generation Z Americans (“zoomers” born in the mid-‘90s and early in their careers) have been hurt, while 51% of millennials (born between 1981-1996) have. The study says that 39% of Generation X (1965-1981) and 30% of baby boomers (1946-1964) have been hurt.  

The younger you are, the more time you have to make up for these kinds of economic setbacks. But it also means a reduced opportunity to invest and save for the long run—yes, even in your 20s you should be thinking about this. TCRS’s Gen Z and millennial data also support data from other studies that shows  younger Americans waiting longer to marry, having fewer kids and being priced out of the soaring housing market.

Meanwhile, the 4% of Americans who have retired early comes as no surprise. The “Pandemic forced millions of workers to retire early,” AARP reported this spring. And while some of these folks may have enough saved up, most don’t. As a result, many are taking Social Security as soon as they can—age 62—which means cash now, but smaller checks: the average monthly payout this year is $1,543.  

Not surprisingly, there has been a lot of painful belt tightening. The TCRS study says Americans hurt by the crisis have:

  • cut day-to-day spending: 32%

  • dipped into savings: 24%

  • taken on credit card debt: 17%

  • stopped contributing to retirement accounts: 14%

  • skipped healthcare: 14%

  • stopped rent or mortgage payments: 7%

As with the first set of findings, younger Americans have borne the brunt of these sacrifices. 

The first bullet point—cutting spending—may be healthy on an individual basis. But all the others are financially harmful, and in the case of skipping healthcare, potentially dangerous. They also speak of financial desperation. You don’t skip housing payments unless you’re truly desperate; the continuing fight over eviction moratoriums reflects just how perilous a position millions of our fellow citizens are in.   

As for skipping contributions to retirement accounts—again, no surprise given things like reduced pay and hours, if not outright layoffs and furloughs—this will result, decades from now, in a smaller retirement pot for millions. This is the “butterfly effect”: a change that seems small now can have a great impact later. 

And not only have some stopped contributing to their retirement accounts, many are taking cash out of a 401 (k) or IRA. Again, age is important here. If you’re younger than 59-1/2, this too can be costly, and I’m talking about more than just shrinking your nest egg. Normally anyone younger than that who withdraws funds from a 401(k) or IRA would be hit with a 10% penalty, but the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived this for 2020. But beware: the penalty went back into place in 2021. On top of this, any money you take out is subject to tax, though you can spread the pain over three years. 

Also troubling is taking on more debt with credit cards, given their sky-high interest rates. This is a vicious circle, given that the more you tap your credit, the more you’re considered a risk by a bank. It could then lower your credit rating, and raise your interest rate even further (banks are required to give you 45 days’ notice of this, and the higher rate will only apply to new purchases, not your outstanding balance). My advice here: Do whatever you can to avoid credit card debt.

“The pandemic has exposed weaknesses and revealed opportunities for improving retirement security,” TCRS’s Collinson says. “The insights gained can be applied toward effecting positive change. A concerted effort is needed among workers, employers, and policy makers.” She offers ideas for each of these stakeholders: 

  • Workers should create financial plans, use budgets, differentiate between short and long-term financial goals and develop a retirement strategy.

  • Employers can enhance their retirement, and health and welfare benefits offerings, as well as business practices to help employees protect their finances, save for the future, and manage work-life balance.

  • Policy makers can implement additional reforms that expand retirement plan coverage, increase incentives for employers to offer plans, and facilitate retirement savings. 

“Workers’ ability to achieve a secure retirement ultimately depends on access to meaningful employment throughout their lives, the availability of retirement, and health and welfare benefits, and the preservation of safety nets such as Social Security and Medicare,” adds Collinson. “As we emerge from the pandemic, we have an unprecedented opportunity to strengthen the fabric of our retirement system — including how we live, work, retire, and age with dignity.”  

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