COVID-19 alters retirement horizons
Financial wellness programs will be critical in 2021 for getting employees back on track for retirement.
The COVID-19 pandemic is having divergent impacts on retirement timing — in some cases squeezing out older workers earlier than they expected through involuntary retirement while causing others to delay their voluntary retirement plans.
Whether voluntary or involuntary, the number of Baby Boomers who left the workforce since the beginning of the pandemic has accelerated, according to an analysis of monthly labor force data published by Pew Research Center.
The analysis found that in the third quarter of 2020, about 28.6 million Baby Boomers reported that they were retired, up 3.2 million from the third quarter of 2019. That represents an accelerated pace from the typical 2 million retirements per year among Baby Boomers, Pew said.
For those nearing retirement age who are still working, however, a significant percentage are considering delaying retirement due to the financial impacts of the pandemic.
A recent study commissioned by retirement technology company Smart found that one in eight adults over the age of 55 are planning to delay their retirement due to the COVID-19 pandemic. Thirty-nine percent of adults over age 55 said they plan to retire between the ages of 65 and 69, while 18 percent said they think they will retire between age 70 and 79, the study found.
Those findings echo the results of a Northwestern Mutual study that found the economic impact of COVID-19 has changed the retirement timeline for nearly one-third of Americans.
According to the study, 20 percent of Americans plan to delay retirement beyond what they previously expected, while 10 percent plan to accelerate their retirement timeline.
Millennials were most likely to anticipate an early retirement, while one-quarter of respondents from Generation X said they will push back their retirement due to COVID-19, according to the Northwestern Mutual study. Baby Boomers expect to retire at 68.8 years old on average while Gen X expects to retire at 63.2 years old, millenials at 61.3 years old and Gen Z at 62.5 years old.
The study also found that the greatest obstacles to financial security in retirement have flip-flopped during the pandemic. Before COVID-19 began to spread widely, lack of savings (42 percent) was the top obstacle followed by healthcare costs (38 percent) and the economy (34 percent). Now it is the economy (49 percent) followed by lack of savings (33 percent) and health care costs (32 percent).
The reality of delaying retirement is not a surprise considering the hit confidence about retirement security has taken since the beginning of the pandemic. One in five workers said their confidence in their ability to retire comfortably declined in 2020, and only 27 percent are very confident that they will be able to fully retire with a comfortable lifestyle, according to a report by Transamerica Center for Retirement Studies.
“Before the pandemic, the retirement prospects for many workers was iffy at best,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS. “The pandemic has exacerbated that situation. Millions of workers have experienced negative impacts to their employment, ranging from pay cuts and furloughs to job loss. Some workers have even dipped into their retirement accounts to make ends meet. It will take years for many workers to financially recover – and some may never recover.”
For employers, delayed retirement has a real cost. According to a 2019 study by Prudential, a one-year increase in average retirement age can increase workforce costs by between 1 and 1.5 percent annually.
For an employer with more than 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost up to $3 million, Prudential estimated. The cost differential between a retiring employee and a newly hired employee can exceed $50,000, according to the analysis.
As a result of the pandemic and its impact on financial security in retirement, employers are likely to focus energy during 2021 on helping employees recover financially and get back on track for retirement. This may include encouraging employees to build emergency funds, repay withdrawals from retirement accounts, and increase their savings rates.
“Employers should look for ways to assist employees in getting back on track with respect to short and long-term savings,” said Greg Wilson, head of Workplace Solutions at Ayco, a Goldman Sachs Company. “Many employees took advantage of CARES Act loans or withdrawals from their 401(k) plans this year and discontinued savings into the 401(k) due to cash flow issues or because their employer suspended matching contributions. Financial wellness coaching can help these employees get back on track by working with them to develop a plan and budget for repaying any 401(k) loans or withdrawals, resetting their 401(k) savings and rebuilding emergency savings.”
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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