Pandemic Extends Retirement Insecurity for Americans
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How did pandemic relief measures affect Americans' short-term finances?
Here's your money briefing for Wednesday, January 20th. I'm J.R. Whalen for The Wall Street Journal. Pandemic relief measures like stimulus checks and loan forbearance have helped a lot of U.S. households stay afloat and pay their monthly bills. But the long-term picture is less rosy. The portion of households that are projected to be unable to maintain their standard of living and retirement continues to creep higher.
One answer is because of the impact of the financial crisis, but there are also long-term changes that affect retirement readiness for the population.
Coming up, our retirement reporter Ann Turgason will review the factors at work affecting Americans' retirement finances and discuss why relatively few people last year chose to draw from their retirement accounts to make ends meet. That's after the break.
Nearly all areas of personal finance were affected by the pandemic in 2020. Among them were Americans' ability to save for the future. Ann Tergesen covers retirement for The Wall Street Journal. She's been writing about the struggles people faced in saving for retirement, as well as some successes. And she joins us now.
Why did retirement insecurity only modestly worsen in 2020 according to Boston College?
Ann, thanks for being with us.
You're welcome.
So, Ann, how much damage has the recession done to Americans who are trying to build financial security when they retire?
The interesting thing, though, is that we haven't seen a huge amount of deterioration. So you might expect, given the severity of the recession in terms of the change in unemployment rate and GDP, you might expect to see a pretty sharp deterioration, but that was not the case. According to the study by Boston College, their composite index sort of indicated that in 2019, when the economy was doing well, about 49% of Americans were likely to fall short of having enough to maintain their growth. current standard of living in retirement. However, now in 2020, that number has increased to 51%. So 51% of American households now are at risk of falling short in retirement. So it's not a huge change from 49 to 51.
I mean, it is a change, but it's not a huge change.
I guess you could consider that good news considering how much of the economy was shut down. But why do you think those numbers stayed in a fairly narrow band?
I think it has to do with the fact that both the stock market and the housing markets in general overall have held up well. I mean, that doesn't mean that every person who owns stocks didn't experience some losses. It depends on the stocks that you own. But if you own like a pretty broadly diversified portfolio of stocks, you probably did pretty well in 2020. And, you know, every housing market did not go up in 2020. But in aggregate, the market went up a little bit. So I think that the two main sources of wealth that people pull from in retirement are obviously they pull from Social Security, but aside from that is their 401ks and their home equity. And in both of those pots of money have held up pretty well in 2020.
Obviously, you know, people who experience job losses would be in a different category and they might be experiencing significantly more financial stress.
But at the same time, we should note that the percentage of households at risk of falling short at retirement has crept higher over the past decade. What factors have contributed to that?
How did stock and housing market performance help preserve retirement savings in 2020?
Boston College started doing this in 2004. They sort of assess where the population as a whole stands every three years because they use a set of government data that comes out every three years. So in 2007, the figure was 40%, meaning 40% of American households were at risk of falling short in retirement. Then after the financial crisis, we went from that 40% to about 50%. And it stayed at pretty close to 50% ever since. So The question is why. And one answer is because of the impact of the financial crisis. But there are also long-term changes that affect retirement readiness for the population. One has to do with Social Security. There's been an increase in the age at which you can claim your full Social Security benefit over time.
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Chapters
7 chapters
1
How did pandemic relief measures affect Americans' short-term finances?
0:05–1:15
2
Why did retirement insecurity only modestly worsen in 2020 according to Boston College?
1:15–3:21
3
How did stock and housing market performance help preserve retirement savings in 2020?
3:21–5:18
4
What long-term trends have increased the share of households at risk in retirement since 2004?
5:18–7:20
5
How many people used the CARES Act penalty-free 401(k)/IRA withdrawal option in 2020?
7:20–8:18
6
Who was most able to avoid tapping retirement accounts during the pandemic and why?
8:18–9:02
7
What are the rules for repaying CARES Act withdrawals and could the policy be extended?
9:02–9:21
Speakers
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