The coronavirus crisis has forced many consumers to search for spare change amid a tidal wave of job losses, home office installations and emergency expenses. Early in the pandemic, MagnifyMoney found that 3 in 10 Americans had withdrawn money from their retirement.
Despite light at the end of the pandemic tunnel, 1 in 4 Americans tells MagnifyMoney they plan to retire later because of the crisis, including 42% who lost income in this period.
MagnifyMoney surveyed more than 2,000 consumers — including over 1,000 of whom have a retirement savings account — to find out the continued impact of the crisis on Americans.
Key findings
- The pandemic is preventing many Americans from saving for retirement. Forty-eight percent of people with a retirement savings account either stopped saving or decreased their contributions amid the crisis. About 1 in 6 haven’t started saving again.
- While some consumers tapped their retirement savings for extra cash, the majority regret doing so and have begun replenishing their savings. Seventy-seven percent of those who took money from their account at least somewhat regret it, and about three-quarters have already begun paying themselves back.
- A portion of Americans say they were already behind in saving for retirement before the pandemic hit. Nearly 3 in 10 Americans say this was the case, not even accounting for the global crisis. Likewise, 59% of consumers feel like they’ll never catch up to where they need to be.
- Some Americans now plan to retire later — especially those who lost income during the pandemic. Twenty-five percent of consumers say they’ll likely need to retire later. That figure jumps to 42% among those who lost income during the crisis.
- Lack of income is the biggest barrier consumers face when it comes to saving for retirement. Nearly 2 in 3 Americans surveyed named at least one barrier they’re facing. Not making enough money took the top slot by a landslide.
Coronavirus pandemic prompts changes to retirement savings
First, the good news: Forty-one percent of respondents say the coronavirus pandemic didn’t impact their retirement savings. In fact, 11% of consumers say they were able to increase contributions.
But the other 48% of respondents have either stopped contributing or decreased contributions for a period or altogether. Of this group, 20% say they’ve resumed or increased contributions, 16% haven’t started saving and 12% haven’t increased their amount after decreasing it.
Back to more good news (well, briefly): The majority of consumers were able to leave money in their retirement savings, with less than 4 in 10 (39%) saying they have withdrawn or borrowed from their accounts during the pandemic.
But those who took out money from their retirement savings mostly weren’t doing so out of precaution or for advantageous reasons. Forty-seven percent used the money to cover expenses, with another 21% using it to help a loved one struggling financially. Other reasons included:
- Paying off debt (25%)
- Taking advantage of legislation allowing withdrawals without penalty (21%)
- Losing a job (18%)
- Worrying about losing money in the stock market (9%)
Borrower’s remorse among those who tapped their retirement
It’s important to understand the dangers of borrowing from your retirement savings — even when there isn’t a tax penalty in certain scenarios.
“Taking an early withdrawal may seem like a good quick fix for some cash, but doing so can seriously derail your long-term retirement savings,” says Ismat Mangla, MagnifyMoney’s content director.
Nearly 8 in 10 (77%) who withdrew or borrowed from their retirement savings regretted the move at least somewhat. And 74% are already working on replenishing their accounts.
“Withdrawing even a little bit means that you will miss out on the benefits of crucial long-term growth from compounding interest,” Mangla says.
So it’s great to see savers working to make up for borrowed savings, but will they be able to catch up?
MagnifyMoney: 17 Retirement Statistics You Should Know in 2021
A bump in a bumpy retirement road
Though the pandemic set plenty of people back in their retirement savings, many admitted they weren’t completely on track before the COVID-19 crisis. In fact, 64% of respondents say their retirement savings weren’t in the best shape or were certainly behind aspirations before the pandemic hit.
While 27% overall say they were already really behind in their savings, women were nearly twice as likely as men to feel their savings were behind (36% versus 19%).
What’s more troubling is that regardless of how the pandemic affected plans, 59% of consumers fear they won’t catch up to where they need to be in time for retirement.
Despite these fears, most people aren’t changing their retirement plans, with just 34% saying they have shifted course.
But of those who changed plans, more people have delayed their retirement expectations. Only 9% of consumers now plan to retire earlier, but 1 in 4 are delaying retirement. And 42% of those who reported losing income during the pandemic say they have to delay, compared with 12% who didn’t lose income.
It’s possible some people don’t expect that more time working would significantly improve their retirement savings efforts.
When asked what barriers may be preventing them from saving for retirement, 30% of respondents say they don’t earn enough money to meet their contribution goals. Nearly 2 in 3 consumers overall cited some form of barrier.
Younger generations buy time, while baby boomers face fears
Though younger generations may have more time in the workforce ahead of them, age doesn’t play much of a factor in determining whether respondents feel they don’t earn enough money to be hitting their savings goals. A similar share of respondents in each generation shared the sentiment:
- Gen Zers (ages 18 to 24): 26%
- Millennials (ages 25 to 40): 33%
- Gen Xers (ages 41 to 55): 30%
- Baby boomers (ages 56 to 75): 29%
And though baby boomers would likely be closer to retirement than younger consumers and thus may have a better idea of how much savings they will have, they report pushing back their retirement at a much lower rate. Younger generations are far more likely to delay retirement plans following the pandemic:
- Gen Zers: 26%
- Millennials: 31%
- Gen Xers: 31%
- Baby boomers: 11%
3 tips for building and rebuilding your nest egg
- Keep your eye on the prize. Retirement might seem far off when you’re early in your career or when you could use some extra cash. But “withdrawing early can mean having to work a lot longer before being able to retire or having to save extra before retirement to make up ground,” Mangla says. In other words, the long-term impact of dipping into retirement savings could be worse than alternatives. A financial advisor could help you keep your priorities in check.
- Read the fine print. When it comes to retirement savings, consumers should be aware of any tax implications for withdrawals and contributions. Though the CARES Act exempted some retirement borrowers from the additional 10% early withdrawal tax, they could still be on the hook for federal income tax if they don’t pay back the balance within three years.
- Work ahead. Aggressively saving for retirement as early as you can might mean living on a tighter budget than you may want in your youth. But the extra effort could pay off with a secure and enjoyable retirement rather than having to work in retirement or struggle on a fixed income. If you had to borrow from retirement savings, it’s prudent to pay it back as soon as you can. “Start setting aside extra money every month so that you’re not faced with a giant lump sum to pay back all at once before the time period is up,” Mangla says.
Methodology
MagnifyMoney commissioned Qualtrics to conduct an online survey of 2,050 U.S. consumers from May 3-6, 2021. The survey was administered using a non-probability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.
We defined generations as the following ages in 2021:
- Generation Z: 18 to 24
- Millennial: 25 to 40
- Generation X: 41 to 55
- Baby boomer: 56 to 75
While the survey also included consumers from the silent generation (defined as those 76 and older), the sample size was too small to include findings related to that group in the generational breakdowns.
This article originally appeared on MagnifyMoney.com and was syndicated by MediaFeed.org.
Featured Image Credit: Tinpixels.
