Survey: Pandemic cracked many retirement eggs

The pandemic has shifted retirement planning for Americans with many dipping into retirement savings and extending their employment, according to the 22nd Annual Transamerica Retirement Survey.

The good news is that most Americans are saving for retirement, but the not-so-good news is that more than a third have had to dip into that money, the survey found.

“A concerning number are dipping into their retirement accounts by taking loans, hardship withdrawals, and/or early withdrawals,” according to the survey report. “Total household retirement savings is relatively low.”

Thirty-five percent of workers have taken a loan or an early withdrawal from their retirement accounts. Employed workers (39 percent) are more likely to have ever dipped into retirement savings, with 39% doing so, compare with 22% of self-employed and 21% of unemployed workers.

Financial hardship was one factor prompting retirement delay, mostly because of unemployment or large expenses during the pandemic, such as moving. But people across the employment spectrum have rethought their retirement plans.

Jay W. Rishel, a CFP with Overman Capital Management in New Bern, N.C., said his agency saw clients change retirement plans, more often because of conditions caused by the pandemic other than financial.

“On the one hand, we have clients that decided to work a little bit longer because they now could work remotely,” Rishel said.  “And on the other hand, we have clients who retired early due to the frustration of new employment protocols that COVID created.”

Financial pressure was not as driving a force with clients because they had a strong runup in asset values, be they financial or real estate. In fact, the bull market for most of the pandemic convinced some clients they could slide into retirement earlier than they planned, at least to test the water.

“COVID, and all the stay-at-home orders that came with it, gave clients an early taste of what life may look like when you're always at home with your significant other,” Rishel said. “Ultimately, that convinced some clients that they had enough extracurricular activities to keep them busy should they retire. Alternatively, some clients spent lots of time at home and found that they weren't quite ready for the excessive amount of free time they'll have in retirement.”

Saving, but not enough

In the survey, 63% of workers said they believe they are building a large enough retirement nest egg, with 29% strongly agreeing and 34% agreeing somewhat.

Those who felt they had to crack open their nest egg were often driven by debt, the most cited reason at 37%. A quarter of the egg-crackers did so for credit card debt and 21% for other debt.

Medical expenses were the top reason for hardship withdrawals, with 20% citing them. Rounding out those reasons were educational expenses (18%), losses due to a federally declared disaster area (17%) and repairs for damage to a principal residence (14%).

Although seven in 10 workers said they were confident that they will be able to fully retire with a comfortable lifestyle, only 24% were very confident.

The median retirement savings was $54,000, although that varied dramatically for employment status, with employed at $65,000, self-employed at $42,000 and unemployed at $200.

On the top end of the scale, 27% of employed and 26% of self-employed saved more than $250,000, although 17% of all workers said they will need to save more than $2 million. On the other end of the spectrum with no retirement savings were 7% of the employed, 17% of self-employed and 37% of unemployed workers.

Workers are expecting diverse sources of retirement income, most citing self-funded savings (72%), Social Security (60%) and income from working (33%).

A lot of DIY

Workers estimated that they would need a median of $350,000 to feel financially secure in retirement. That also varied depending on employment status, with employed workers saying they would need $400,000, self-employed $500,000 and unemployed $100,000.

Many of the respondents are taking broad guesses at their retirement needs, with only 23% using a retirement calculator or using a worksheet. More than a third (36%) used their current living expenses.

The good news is 35% used a professional financial advisor, which is fortunate because only 12% of respondents said they knew a great deal about asset allocation principles.

Sixty-three percent of workers agreed with the statement, “I do not know as much as I should about retirement investing,” including 26 percent who “strongly agree” and 37 percent who “somewhat agree.”

Most workers (70%) have a financial strategy for retirement, but only 29% have it written down. Only 37% had a backup plan in case they are unable to work before their planned retirement.

Jasper Smith of the BuildWealth Movement in the San Francisco area said near-retirement clients that he had before the pandemic were insulated because of adhering to the plan.

Smith said he makes sure clients check certain basic boxes:

HAVE: How many buckets of retirement assets do you have? What's the risk you're taking in each of those buckets? What are the tax implications of those accounts?

NEED: How much will you need to survive? Do you have longevity in your family? If so, we better plan on living to 100.

GAP: Identify the gap between have and work to fill that gap.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at stevenamorelli@gmail.com.

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