By Allie Fleder, COO of Simplywise
Beyond the unprecedented health impact of COVID-19, the virus has created enormous financial uncertainty across the country and around the globe. Unemployment in the U.S. soared to 14.7% in April, up from a historic low of 3.5% in February. Panic sent markets spiraling in the first quarter of the year. The S&P 500 lost 34% of its value in just over a month, and the Dow Jones Industrial Average plunged, losing almost a quarter of its value between January and March.
Markets have somewhat rebounded with hopes of a coronavirus vaccine and the easing of lockdowns that are slowly re-opening shuttered sectors of the economy but Americans’ economic outlook remains shaky. A recent survey revealed that 60% of citizens today think the next five years will be characterized by “periods of widespread unemployment or depression.”
The economy and job losses are particularly hurting those who were considering retirement in the next few years. The May 2020 Retirement Confidence Index from Simplywise found that 30% of American workers over the age of 62 (the earliest age at which one can collect Social Security retirement benefits) have recently been laid off or furloughed due to coronavirus. Worse, 38% of workers over 65 have recently been laid off or furloughed.
The study, which polled over 1,000 Americans aged 18+, explored sentiment around retirement, Social Security, and savings, particularly given the coronavirus pandemic today. Its findings that the unemployment rate is indeed higher for seniors may be indicative of companies looking to cut those with higher salaries and potentially greater insurance costs. But putting aside for now the potential age discrimination, the reality for those let go or furloughed is that they’re faced with the decision of whether to retire earlier than expected, or keep working and look for a job today.
The impact of coronavirus on retirement
COVID-19 has wrought havoc on the retirement plans of many older Americans. For starters, a lifetime of savings may now be in jeopardy. In the first three months of the year, the average 401(k) dropped 20% due to market volatility. A CARES Act provision that facilitates retirement account withdrawal is likely to send those balances even lower in the coming months. In fact, 20% of the Simplywise survey respondents who were recently laid off or furloughed reported they now plan to tap their retirement savings for cash today.
Moreover, the CARES Act provides payroll tax relief to all companies in the form of FICA tax payment delays of up to two years, allowing firms to postpone Social Security payouts. This, combined with the high unemployment numbers, will put further pressure on the Social Security trust fund, already expected to run out by 2035.
It also puts pressure on those considering retiring. In fact, the survey found that in the face of the mounting uncertainty today, 56% of Americans are now more concerned about retirement than they were a year ago. For people in their 50s, a full 69% feel more concerned about their retirement prospects today than this time last year.
For those not yet claiming Social Security benefits, financial concerns are the greatest anxiety as they think about retirement. The Simplywise survey found that half of respondents are now concerned that they will outlive their savings in retirement. Over 40% of respondents today do not believe they will be able to retire at all.
On average, people answered that they expected Social Security to pay less than half of their monthly bills. Moreover, 56% of respondents were concerned that Social Security would dry up altogether before they retire, meaning they would have to depend entirely on their own savings and income to pay their retirement-years’ expenses.
Many are interpreting the declining Social Security fund and the current crisis as a call to postpone retirement. A full 26% of respondents said they now plan to postpone stopping working altogether. Others are considering delaying collection of their retirement benefits. One in five (23%) respondents in their 50s and 60s are now planning to delay Social Security benefits. This is because waiting longer to claim results in a larger payout when you do collect – up to an 8% increase per year that you wait.
Working during retirement on the rise
Even when Americans do officially ‘retire’ and/or begin claiming Social Security, it does not necessarily mean the end of work. In fact, the majority of U.S. citizens are now planning to work after claiming benefits. A Pew Research Center analysis in 2000 found that 13% of Americans 65-and-older were working in retirement. Compare that to the recent Simplywise survey, which found that 67% of those not yet collecting Social Security benefits now plan to continue working during retirement. There was no significant difference in gender in the choice to keep working; across the board, men and women are planning to work equally to pay the bills. For Americans recently laid off due to COVID-19, 73% reported that they are planning to work in retirement. One in four of them actually “changed their minds” in the last year; after thinking they would not work during retirement, they now believe they will need to.
While working into one’s 70s may not be the lazy beachside retirement you always envisioned, having a job as a senior can provide more than a paycheck. Working gives purpose, structure to one’s days, job satisfaction, and regular social interaction. And again, if that income enables you to delay Social Security past “Full Retirement Age” (up to 70 years old), your benefits could increase significantly. Conversely, claiming Social Security early (before Full Retirement Age) permanently reduces your benefits.
Seniors across the United States are grappling with today’s employment reality, and even more are now weighing what it would mean to go back to (or stay at) work in a post-coronavirus world, versus what it would mean to retire early. Using a Social Security calculator can support that decision-making by helping to determine what you’re owed today, and why it might pay to wait to collect benefits. Of course, in the end, making the right decisions for your own retirement requires understanding all of your options, from the best age to start receiving monthly benefits, to the kind of work you want to be doing in your 70s—if at all.