There’s been a drastic shift in the economic and stock market outlook as a global pandemic affects most every aspect of peoples’ lives, leaving many wondering what the coronavirus’ effect on retirement could mean for baby boomers.
While COVID-19 should cease to be a threat at some point, letting markets and the economy recover, there are a few lasting impacts it could have on everyone’s retirement, particularly if you were planning to retire soon.
“This is going to leave a real imprint on the minds of people who are near or in retirement,” MIT AgeLab Director Joseph Coughlin said in a recent Forbes interview. “It’s a personal health 9/11 for much of the country.”
The impact and recovery will alter the course of many baby boomers’ (born between 1946 and 1964) plans, so we’ll take a look at some ways the coronavirus could effect your retirement.
3 Lasting Coronavirus Effects on Retirement
Younger Boomers Face a Tough Situation
Late baby boomers (born 1960 or later) already got rocked by the Great Recession, setting them up to save less than boomers born earlier.
A recent study from the Center for Retirement Research at Boston College found late boomers had significantly less saved in 401(k) and IRA accounts than their older counterparts, judging from data up to 2016. The study didn’t consider pensions, which are much more common for older Americans but going the way of the dodo these days.
The good news is late boomers are on track to save more than early boomers down the road, but the effect of the coronavirus on retirement could be felt again if more workers are laid off in response to the virus’ impact on business — which will be substantial. The CCR mentioned it will revisit the study when the Federal Reserve’s 2019 Survey of Consumer Finances is released.
Market Panic Dooms Boomers’ Wealth
Money & Markets recently reported what to do with your 401(k) in the event of a market crash like the one we’re currently experiencing. While the best strategy is to wait it out and let markets recover, many boomers simply won’t or can’t do that.
Panic selling means some boomers will create “realized losses,” and by the time they try to get back in they may have missed out on big gains because stocks typically recover in large chunks soon after a crash.
Financial planner Kristin McKenna found that in the last 20 years, six of the 10 best daily gains on the S&P 500 happened within two weeks of the worst 10 days. Average annualized returns sink to 2.44% if an investor missed those 10 days, instead of 6.06% if they had just ridden it out.
“In any event-driven, straight-line downturn like this, the best way to protect your retirement account is to leave it alone,” Bauman said. “The last thing you want to do is book large losses you can’t recover later.”
Bauman knows many retirees face required minimum distributions (RMDs) from retirement accounts, but he doesn’t think they should be used for expenses if at all possible because markets will recover.
“Many people are confronted with required minimum distributions,” Bauman added. “The government is probably going to waive requirements for those this year but until they do, retirees should try to fund their living expenses, either from cash savings or via credit card. That way they can delay liquidating depreciated stocks in their portfolios until, hopefully, the market recovers.”
Be sure to check out some of Bauman’s other tactics for using RMDs as a tax benefit in a downturn.
Working Longer Is Sure to Become More Difficult
The traditional retirement age was 65, but facts show leaving the work force at that age isn’t nearly as common anymore. A 2019 Pew Research Center study found the baby boomer workforce has shrunk by 5,900 per day since 2010, despite 10,000 boomers hitting 65 years old every day.
Of course, some in the age group are retiring early (perhaps by choice or for health or other reasons), but many are still working past 65. In fact, Pew found 29% of individuals ages 65 to 72 were either in the workforce or actively looking in 2018.
Many older workers are expecting to work past 65, too. A whopping 54% of workers age 55 and older expect to either retire at 66 or later — or even never, according to a 2016 Employee Benefit Research Institute survey. That number was only 19% in 1996. But an economic shock like the coronavirus could force workers out earlier than intended.
The coronavirus effect on retirement will be felt in many ways going forward. And while we can’t predict how severe the impact will be, it’s a good idea to address the issue, stay calm and try to plan as much as possible — and then stick to that plan.