Retirement security, already precarious, worsened due to pandemic: study
Negative findings aren't even a complete picture of COVID-19's impact on retirement savings, says Center for Retirement Research.
A recent academic study claims that the economic impact of COVID-related job loss and market fluctuations have made retirement plans across the country more uncertain.
The study, conducted by the Center for Retirement Research at Boston College, uses a model researchers call the National Retirement Risk Index (NRRI) which measures a sample of working-age households at risk of being unable to afford their pre-retirement living standard.
According to researchers, the NRRI has increased from 50 percent, at pre-COVID-19 levels, to 55 percent, with low-income households being the hardest hit by a widening savings gap. The study noted that retirement security was already in a precarious position prior to the outbreak, which has only made things worse.
“Ensuring retirement security for an aging population was one of the most compelling challenges facing the nation before the onslaught of COVID-19,” the study said. “The unemployment associated with the pandemic has made the situation worse across the board. The NRRI has most likely increased from 50 percent to 55 percent, and changes in asset prices and further declines in the interest rate would only make the increase larger.”
However, researchers admitted that the NRRI–originally constructed using the Federal Reserve’s 2004 Survey of Consumer Finances and updated over subsequent years–fails to paint a complete picture of coronavirus’ economic impact.
For example, it focuses solely on employment and doesn’t take into account changes in asset prices.
“The NRRI does not fully capture the harm done to a population with so many households already at risk, as the pandemic has made the savings gap larger,” the study said.
“These results underscore the need for policies that provide well-targeted assistance to employers and individuals aimed at preventing more people from becoming unemployed and getting those who are unemployed back to work quickly as the pandemic subsides,” it continued. “The shorter the spell of unemployment, the less harm people will experience to their long-term retirement prospects.”
The NRRI looked at retirement risk for households aged 30-59 using data from the Federal Reserve.
In reaching their results, researchers projected what they called a replacement rate–retirement income as a share of pre-retirement income–for each household; developed a target replacement rate that would allow each household to maintain its pre-retirement standard of living; and compared the projected and target replacement rates to find the percentage of households they considered to be at risk.
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