- For many Americans, the pandemic has caused a major setback in their retirement plans.
- Nearly 60% of Americans withdrew from their retirement accounts during the pandemic, according to a recent survey.
- Most withdrawals from retirement accounts in 2020 represented significant amounts of money.
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Nearly 60% of Americans withdrew from their retirement accounts during the pandemic, according to a recent survey from finance magazine Kiplinger and Personal Capital, a wealth management organization.
The pandemic caused many people to borrow from their future in order to meet everyday needs throughout state shutdowns and the highest number of job losses since the Great Depression.
According to the survey, in 2020, most people between the ages of 50 and 74 were forced to drain funds from their IRA or 401(k). While 63% of those surveyed said they primarily used the funds to cover everyday living expenses, other respondents cited medical bills, home repairs, and funding for other family members.
The withdrawals were not small sums either. Most withdrawals from retirement accounts represented significant amounts of money, with about one-third of respondents withdrawing over $75,000.
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The Kiplinger survey was conducted during the end of the year and included 744 respondents between the ages of 40 and 74, evenly split between genders with retirement savings of at least $50,000. The online survey has a 95% confidence level.
The editor of Kiplinger Personal Finance, Mark Solheim, said the survey shows the long-term ramifications of the pandemic.
“The past year rocked the confidence of most Americans saving for retirement,” Solheim said in a press release. “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.”
For many Americans, the pandemic has caused a major setback in their retirement plans. More than half of survey respondents said they planned to work longer or delay retirement as a result of the financial circumstances of this past year.
While the US government tried to implement bills that would spare Americans from the financial consequences of the pandemic, nearly 30% of Americans surveyed took out loans through the CARES Act signed into law in March, which permitted loans of up to $100,000. 58% of those who took loans borrowed between $50,000 and $100,000.
According to the National Bureau of Economic Research, most retirement funds in the US were already underfunded before the pandemic started. Nearly half of Americans between the ages of 32 and 61 do not have any retirement savings and most of those that do have savings under $21,000, according to a 2019 study from the Economic Policy Institute.
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“Last year presented many challenges,” said Personal Capital President Jay Shah. “The pandemic not only created a global health crisis, it impacted the financial outlooks and retirement plans of many.”
As the pandemic has forced more people to dig into their retirement funds, many Americans may be forced to rely on Social Security.
In 2020, the Center on Budget and Policy Priorities reported that 20% of retirees depend on Social Security to make up at least 90% of their income, while half relied on the funds for over 50% of their income.
For many Americans, Social Security funds will come nowhere near subsidizing their current lifestyle. As of November 2020, the average Social Security monthly benefit is about $1,476, according to the Social Security Administration.
The pandemic also forced many Americans to retire earlier than they had anticipated, which could also cause lasting effects for older workers who chose not to retire and will not have as much time as younger workers to make up for lower wages in 2020.
Many of the 22 million US jobs lost during the pandemic will likely not return for several years to come. According to Moody’s Analytics chief economist Mark Zandi, the US will not regain the jobs lost during the onset of the pandemic until 2024.