Retirement planning should be considered early in one’s career, and saving strategies should evolve as goals and timelines change. A typical retirement plan involves determining time horizons, purchasing stocks and other investment vehicles, contributing to employer-sponsored plans or individual retirement accounts, and estate planning, among other aspects.
The average retirement age for men and women in the United States is 65 and 63, respectively, according to US Census Bureau data. However, this may change due to the adverse effects the COVID-19 pandemic has had on the national and global economy.
Baby Boomers Forced into Retirement
Working conditions in the United States have changed drastically since the start of the pandemic. While many continue to enjoy the freedom of remote working solutions, others have lost jobs and even been forced into early retirement due to health concerns or a lack of employment opportunities. The National Institute on Retirement Security’s “Retirement Insecurity 2021” report, undertaken by Greenwald Research in December of 2020, found that more than half of the 1,200 working adults polled were concerned they will not have enough savings for retirement.
Baby boomers, or those born between 1946 and 1964, have been particularly impacted by the economic and health challenges associated with the pandemic. A total of 1.1 million boomers retired between February and September of 2020, compared to only 250,000 during the same time period the year prior.
Those forced into early retirement with sufficient savings may be able to weather the financial implications of their circumstances, while others have had to claim Social Security benefits earlier than anticipated. Benefits are available once individuals turn 62 years old, but at a reduced rate that stays in place for life. Thus, it is generally best to defer Social Security if possible.
However, this posed a challenge for the average retiree even before the pandemic. In 2017, only 5 percent of Americans eligible for Social Security claimed maximum benefits at age 70. A recent United Income study suggests that the average lifetime loss resulting from failure to defer Social Security benefits will total $95,000 per household.
Younger Workers Expecting to Delay Retirement
Highlighting the widespread economic impact of the COVID-19 pandemic, a recent Fidelity Investments study indicates that 82 percent of Americans’ retirement plans have been negatively impacted. This is in line with the National Institute on Retirement Security’s findings that 67 percent of Americans intend to retire later than anticipated due to COVID-19. Moreover, 33 percent of those polled in the Fidelity survey expected it would take between two and three years to restore lost savings and get their retirement plans back to pre-pandemic levels.
Fortunately for younger Americans, experts anticipate an influx of job openings as a result of the high volume of baby boomers being forced into early retirement. The US Census Bureau’s “Household Pulse” survey, conducted in March 2021, highlights a net 1.7 million early retirements, with particular emphasis in major urban cities. A net 300,000 people in the New York City metro area expect to file for Social Security benefits earlier than anticipated, which could create openings for Gen X and Gen Y workers. Baby boomers have accounted for virtually all of the net job growth in the United States since 2000.
Confidence Among Those with a Concrete Retirement Plan
While the Fidelity survey suggests inflated levels of retirement insecurity among many Americans, it also found that those with a concrete retirement plan remain confident in their ability to retire on their own terms. In fact, 36 percent of respondents noted they felt even more confident in their plans than they had prior to the pandemic.
“Having a plan will help you think more clearly about retirement expenses,” said Fidelity director of retirement and income solutions John Boroff. “It will help you identify where you are in terms of retirement planning. It will help you understand where you have fallen behind. And it will help you figure out what you need to do moving forward to reach your retirement planning goals.”
Post-Pandemic Retirement Trends
A recent Merrill Lynch Wealth Management webinar presented some of the most prominent post-COVID-19 retirement planning trends. One of the most notable trends relates to how Americans plan to spend their retirement savings.
Age Wave co-founder and webinar featured speaker Ken Dychtwald noted that the lack of human connection during the pandemic has prompted many Americans to seek out a greater sense of purpose in retirement. People have lived relatively sedentary lifestyles during the pandemic and, as a result, would generally rather do something more meaningful in retirement, whether that be spending more time with friends and family or traveling when possible.
Other emerging trends that could alter retirement planning for Americans include increasing life expectancy, rising health care expenses, and historically low interest rates. One consideration for retirees who can accept greater investment risk to combat low interest rates is to place greater emphasis on preferred securities or equities as opposed to fixed income.