The economic problems created by COVID-19 have put pressure on the finances of many retirees and those preparing for retirement. The U.S. government reported recently that as a result of the pandemic, Social Security’s main trust fund is projected to deplete in 2033, a year sooner than previously forecast. The pandemic altered the timing of retirement for 69 million Americans, with one third of all Americans saying they will retire later for financial reasons. And, the crisis increased concerns among retirees and pre-retirees about rising costs for health care and long-term care.
Our 2021 study “The Four Pillars of The New Retirement: What A Difference A Year Makes,” analyzed the impact of the pandemic on retirement based on surveys of more than 2,000 American adults. Conducted during the pandemic, the studies confirmed there are plenty of challenges facing retirees and would-be retirees. But there are also opportunities for Americans to enjoy a fruitful retirement — both financially and otherwise — and time for people to potentially make up any lost ground if they plan appropriately with the help of their financial advisors.
The spotlight on Social Security
The Social Security report highlighted the strain of lost jobs, income, and contributions from payroll taxes on the system’s finances. This news, however, needs to be put in perspective. Social Security is not going bankrupt. If nothing is done, the system would still be able pay 76 cents for every dollar of benefits beginning in 2034. Before then, Congress could take steps — like boosting the retirement age or increasing payroll taxes to fully fund and protect benefits.
Given the political popularity of Social Security, it is likely some action will be taken. It is also worth noting that Social Security was never designed to provide for all retirement needs. On average, it replaces 30 to 40 percent of pre-retirement income. Financial advisors can help factor this and other expected outside income into your retirement strategy.
The pandemic’s impact – challenges and opportunities
Our study demonstrated that the economic burden imposed by the pandemic was not borne equally. Women were more likely to leave the workforce than men, in part, to take on greater responsibilities at home. Among pre-retirees queried in our survey, women were almost twice as likely to say their job security was hurt during the COVID period. Women’s confidence in their retirement savings also fell and remains at an all-time low whereas men’s confidence has rebounded somewhat. Younger workers and low-wage workers also felt the pandemic’s economic sting disproportionately.
Americans have long been worried about the cost of health care, and those worries mounted over the past year, which is hardly surprising given all the medical issues experienced during the pandemic. Well over half of retirees (58%) listed the cost of medical care and long-term care among their biggest worries. Among pre-retirees (those 50 and over), 66% cited health care and long-term care costs as a major financial worry.
Yet at the same time, there were silver linings amid the dark clouds. 70% of Americans viewed the pandemic as a financial wake-up call and as a result they are now paying more attention to their long-term finances. One in three people are now contributing more to their retirement savings. The percentages are even higher among millennials and Hispanic Americans. Saving more for longer is the best way to make up ground lost to COVID, and people seem to understand that.
A broader view of retirement
The pandemic was more than a financial wake-up call though. Over three-fourths of those we surveyed credited the pandemic with helping them refocus on what is important in life. Finances are part of that equation, but only one part. Health matters to retirees. So does family. So does purpose. That last one may come as a surprise, but its significance came through loud and clear in our work. More than 90% of retirees say that purpose is key to a successful retirement. That sense of purpose can come from many sources: spending time with family and friends, working or volunteering in the community. An overwhelming percentage of retirees told us there should be more ways for them to put their energies and talents toward helping society.
If there is one big takeaway from our research it is this: retirement is a holistic experience. Having enough money to live comfortably is essential, but the other elements, or pillars of retirement as we call them, are equally important. Financial advisors who work with retirees, and those preparing for retirement, should be aware of this when trying to craft a strategy for clients.
And make no mistake: People realize that they need help. Most retirees wish they had done a better job planning for retirement and Americans generally wish there were more resources to help them craft an ideal retirement.
So financial advisors have an opportunity to really add value to their clients. The pandemic shook people up and, in many cases disrupted, their financial strategies. They need to hear from a trusted source that COVID was a temporary setback and that the problems of the Social Security system are manageable. Above all they need to speak with someone who understands what it takes to have a successful retirement. Advice like that is always welcome, but it may be especially needed now.
Katherine Tierney is a senior strategist at Edward Jones, responsible for serving as the thought leader, developer and spokesperson for the firm’s retirement advice and guidance. She joined Edward Jones in 2006, and during her 15-year tenure, she has served in a variety of roles, including directing the firm’s IRA business and product strategy, leading the design and execution of the firm’s goals-based planning software, and serving as a managed investments analyst. Katherine graduated magna cum laude from Saint Louis University in 2004 with a bachelor’s degree in business administration, with an emphasis in finance. She is a CFA charterholder and a member of the CFA Institute and the CFA Society of St. Louis.