COVID-19 income cuts spurring people to tap retirement funds
Takeaways from the Federal Reserve's July update on the economic well-being of U.S. households.
COVID-19-spurred income cuts have led some adults to borrow or withdraw money from their retirement accounts and other savings, the Federal Reserve reported in its July update on the economic well-being of U.S. households released today.
“Fifteen percent of non-retirees who were laid off or had their hours reduced since March said they had tapped retirement assets in the past 12 months, compared to 7 percent of non-retirees who had not experienced an employment disruption,” the Fed revealed.
However, the total share of adults who dug into their retirement savings was the same in the July aftermath of the start of the pandemic as it was in the October before the crisis: 9 percent.
The number of people who said they are doing at least okay financially in July rose to 77 percent from 72 percent in April. The October figure was 75 percent.
Looking at the similarity of July’s feeling of relative good financial strength to October’s, the authors said even though the scale of layoffs during the pandemic has been unprecedented, this stability reflects the fact that many people did not personally experience a layoff.
They added that enhanced unemployment insurance benefits, Economic Impact Payments, and other financial support measures blunted the potential negative financial effects for many families.
Twenty percent of people who said they were working at the time of the annual survey in October told the Fed they were laid off between March and late July. An additional 10 percent said they had their hours cut or took unpaid leave during the period.
In July, 85 percent of adults said they could pay off the current month’s bills on time, up from April’s 81 percent but nearly identical to October’s 84 percent. A sizeable share of adults in July appeared to be better able to handle a small financial emergency than in July than in April or the fall, the Fed said.
Unsurprisingly, the July number was drastically lower for those who were laid off and still not working: 54 percent. Forty-two percent of those who were not able to pay all their bills in July (6 percent of all adults) said that their rent, mortgage, or utility bills would be left at least partially unpaid in July.
Of people who could not pay all their bills in full in July, this most frequently involved not paying a credit card bill or making only a partial payment on it.
The share of adults who reported they would pay an unexpected $400 emergency expense entirely using cash, savings, or a credit card paid off at the next statement increased by 6 percentage points—from 63 percent in October to 70 percent in July with April at 64 percent.
“Since this is a measure of how people would pay the $400 expense, rather than whether they could pay, it is also possible that changes in credit availability or people’s desire to use credit could contribute to these results,” the Fed guessed.
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