Even if you rarely watch the news, you know all about how the COVID-19 pandemic has disrupted everyday life and the economy. People have lost their jobs, businesses have closed for good, and investment portfolios have plummeted. But the worst of its effects on people's finances may not be realized for decades.
In response to the immediate financial crisis, many people have had to alter their budgets, temporarily suspend saving for financial goals, and rethink their retirement plans. While it's always impossible to predict what retirement will look like, especially if it's decades away, here are a few educated guesses on how the pandemic may alter retirement for today's workers.
1. You might not have as much money as you'd planned
Millions of Americans lost their jobs when the entire nation shut down, and that understandably shifted a lot of the focus from saving for the future to just making sure all the monthly bills are covered. Approximately 36% of Americans said they had either decreased their retirement contributions in response or considered doing so, according to TD Ameritrade, to give them more money to use today.
This is problematic for all workers but especially for younger workers. The contributions you make while you're younger can end up worth more because they have more time to grow. Skipping these valuable contributions now will force workers to save more per month when they begin making contributions again. Those who cannot do this will have to get by on a smaller income or make further alterations to their retirement plans.
When suspending retirement contributions isn't enough to get the cash they need, some workers have been taking early withdrawals from their retirement accounts, encouraged by the government's loosening of restrictions in response to the pandemic. While this is certainly better than falling behind on your bills or taking on debt, it can set your retirement savings back even further, forcing you to save much more moving forward to retire on schedule.
To make matters worse, some companies have temporarily suspended 401(k) matching while their revenue is much low. This puts an even heavier burden on workers when they're least prepared to bear it, and those who aren't able to increase their retirement contributions to compensate once they return to work will likely fall short of their original savings goal.
2. It might be shorter
Some workers who have altered their retirement contributions or taken early withdrawals have recognized that they'll need to change their retirement plans if they hope to remain financially secure. Delaying retirement is one of the most popular solutions, with 39% of workers surveyed saying they're at least considering it, according to TD Ameritrade.
There are three key benefits to staying in the workforce longer. First, it gives you more time to save money for retirement, which a lot of people could use given that the COVID-19 pandemic has stunted most retirement savings. Second, it gives the money already in your retirement account more time to grow, so it'll likely be worth more when you're ready to call upon it. And finally, it shortens the length of your retirement, so you need fewer years of living expenses saved to retire comfortably.
A shorter retirement may not be desirable for everyone, and it might not be possible for everyone either. A serious illness or injury could prevent you from working later even if you'd like to. But given all the benefits of delaying retirement, it's at least worth considering. Just remember to focus on your health now and in the future to reduce your risk of forced early retirement due to illness or injury.
3. Social Security might not go as far
The pandemic has added fuel to the myth that Social Security is going to disappear. It's true that the Social Security Trust Funds are projected to be depleted by 2035, according to the latest Social Security Trustees Report, and the added strain the pandemic is placing on the program could move the depletion date up to this decade, according to the Bipartisan Policy Center. But no one involved in making these projections has said that will be the end of Social Security.
Even if nothing changed, Social Security could still continue paying out 76% of scheduled benefits until 2090. That would mean a substantial benefit cut for sure, but workers today will still be able to rely upon the program to provide some financial assistance in retirement. It's also possible the government will make changes to the program in the future to keep it sustainable for generations to come.
That said, it's not wise to expect Social Security to cover all or even most of your retirement expenses. It was never designed to do this, and with a possible benefit cut on the horizon, it's safer to rely upon your personal savings for the bulk of your retirement expenses.
The above news may seem depressing, but it's important to understand. If you don't know how today's events will affect your future, you won't be able to plan appropriately, and then you run the risk of retiring without enough money.