The outbreak of COVID-19 sent shock waves through the world economy, and retirement planning was one of the areas most affected. The pandemic led to widespread job losses and reductions in income, making it difficult for many people to save for retirement. In addition, the stock market crash wiped out billions of dollars of retirement savings.
As a result, a significant portion of Americans had their retirement plans upended, with 35% saying they have had to make major changes to how they save for retirement or when they plan to retire.
A Change in Retirement Plans
The survey of 2,000 adults by OnePoll, on behalf of personal finance company SoFi, found that the pandemic has caused many people to reassess their retirement plans. Among those who have made changes to their plans, 42% said they are now saving more money for retirement than before the pandemic hit. With regards to target retirement, one in four respondents said they have delayed their retirement date, while 22% said they are now planning to retire sooner than they had originally planned.
As for strategic investment, the pandemic caused more than a few people to rethink their investment strategies. In fact, 32% say they’re now investing more conservatively than before. What’s more, the survey found the pandemic has had a particular impact on millennials. 41% of respondents in this particular age group say they have had to make major changes to their retirement plans.
5 Factors Affecting Saving for Retirement
While many have felt the impact of the Covid-19 pandemic on their retirement planning, other factors brought on by covid are also major influences on retirement savings and plans. These are the five factors that have most affected how people save for retirement.
1) Job Losses and Reductions in Income
These two factors make it particularly difficult for many people to save for retirement.
A significant number of businesses were affected by stay-at-home orders; consequently, the workforce has suffered job losses or been forced to furlough employees. As a result, many people’s incomes were reduced, which not only made it harder to pay bills, but also made it difficult to sufficiently save for retirement.
2) A Volatile Stock Market
As the world felt the fear and the impending effects of covid-19, the stock market crash of March 2020 effectively wiped out billions of dollars of retirement savings.
On March 9, 2020 the stock market had led to many losing billions of dollars in their retirement investments. With 401(k)s and IRAs losing a significant amount of money, for many it took nearly two years to climb out of the hole the volatile stock market left them in. In 2022, the stock market again took a severe downturn causing nearly $3 trillion to be erased from U.S. retirement accounts alone.
3) Filing for Social Security
The coronavirus not only led to many people retiring early, but it also led to a sharp increase in the number of people filing for Social Security benefits.
The coronavirus pandemic has resulted in a sharp increase in the number of people filing for Social Security benefits. In May 2020, there were more than 3 million Social Security benefits applications, an increase of nearly 70% from the previous year. And in 2022, nearly 1 in 5 survey respondents reported Covid-19 has caused them to alter plans to file for Social Security benefits. In fact, 9% of these respondents planned to file earlier while 11% delayed filing.
Social security benefits can help people cover their basic needs in retirement, though they are typically much lower than what people were expecting to receive.
4) Health and Life Insurance
For many, the pandemic has forced a reassessment of their health and life insurance coverage.
For some retirees, this has meant accounting for future health care costs and in some instances even forgoing including them. As the cost of healthcare continues to rise, retirees continue to feel the need to rethink their retirement plans. For those who have been able to include it in their planning, they have sought to find health and life insurance solutions that offer better coverage in case of emergency.
Different types of insurance products do different things and depending on the age of the individual buying it the costs can vary. One way individuals educate themselves on their insurance options is to talk to a wealth manager or research insurance and tax options.
For those who haven’t been able to include it in their plans, long-term care may seem like an expensive option to forego during your retirement planning process, but it’s important to keep it in mind and include it as soon as possible..
5) Anxiety and Isolation
Not only did the pandemic cause people to lose money or deal with a global health crisis, it created challenges for those who are already retired. Many retirees felt increased isolation and anxiety.
Retirement is supposed to be considered the golden years for retirees. Covid affected retirees greatly and many had to cancel plans for travel and other activities. In some cases, it led to feelings of boredom and loneliness and took a toll on their mental health. In addition, the pandemic has many retirees feeling anxious and worried about their health and the potential impact of the virus on their finances. This anxiety consequently seeped into investment strategies and caused people to make decisions that aren’t based on sound economic fundamentals.
4 Tips to Alleviate the Impact of COVID on Retirement Planning
As you can see, the coronavirus pandemic has significantly impacted many Americans’ retirement planning. If you are one of those who have had to make changes to your retirement plans, here are some ideas to alleviate the impact of COVID-19:
Save as much as possible.
If you have been laid off or your hours reduced, try to save as much as possible from your current income. Saving as much as possible can make a big difference in the long run. This can include: cooking meals, brewing your own coffee at home, reducing how much you drive, and managing your utility consumption. These are all simple ways to squeeze the most out of your monthly earnings.
Don’t Make Knee Jerk Reactions to Investments.
If you have lost money in the stock market, don’t panic. It may take time, but the stock market eventually rebounds and your investments will grow again over time. This was true for the crash that led to the great depression, as well as more recent market crashes in 2001 and 2008. It also slightly recovered after 2020. In fact, the market usually experiences a period of exponential growth following these setbacks. Stay patient and stay the course.
Leverage Your Skills For Extra Cash.
Consider turning your hobby or skill into a side hustle for extra income. With the rise of the gig economy, there are many opportunities to make money from home. This can be a great way to supplement your income and help you reach your retirement goals. Be patient and remember it can take time to grow a new business. Spending extra money may also be necessary for software or subscriptions before you see a profit, but it is worth it.
Postpone Your Retirement.
If you’re someone who is close to retiring, consider postponing your retirement date by a few years. This is an effective way to give you more time to rebuild your savings and cushion the blow of any future economic downturns. While not ideal, giving the market time to rebound and accumulating additional compounded interest can provide a noticeable improvement over time. This delay can also ensure you’re getting the most out of your social security benefits.
Know When to Contact a Professional
Among many other things, the outbreak of COVID-19 has been a major setback for retirement planning. Remember, this is only temporary. Taking steps to protect your retirement plans and grow your nest egg is important. By approaching things with a little bit of patience and perseverance, you can weather this storm and retire on your own terms.
That said, it is important to periodically review your goals, especially after a period of drastic economic change. If you feel your retirement planning was affected by COVID-19, contact us for a free evaluation of your current strategy.