Please ensure Javascript is enabled for purposes of website accessibility

3 Ways Coronavirus Could Change How Much You Should Save for Retirement

By Katie Brockman - May 27, 2020 at 8:46AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The COVID-19 pandemic could have a more serious effect on your retirement than you think.

The coronavirus pandemic has turned the world upside down in many ways and affected nearly every aspect of our society. Tens of millions of Americans have lost their jobs, and it's uncertain how long it will be before life returns to some semblance of normal.

If you still have years (or even decades) before you retire, you might think your retirement plans are safe from the adverse financial effects of COVID-19. However, there are at least three ways the coronavirus pandemic could affect how much you need to save, and the sooner you start making adjustments, the more prepared you'll be.

Man looking at documents with coins and dollar bills in front of him.

Image source: Getty Images

1. You could be forced to retire early

Older workers are losing their jobs at an alarming rate. The unemployment rate among workers age 55 and older jumped from 3.3% in March to 13.6% in April, according to the Bureau of Labor Statistics. Slightly younger workers didn't fare much better, with those ages 45 to 54 experiencing an unemployment rate of 12.3% in April.

Those who are later in their careers may have a tougher time finding another job, too, because it may be more difficult to get hired when prospective employers know you're going to retire in just a few years. As a result, many older workers who lose their jobs may be forced into early retirement -- whether they're ready to retire or not.

If you're fortunate enough to still have a job, it's wise to save as much as you can now just in case you have to retire earlier than you expected. Early retirement can be tough because you don't have as much time to save and your savings need to last longer since you'll be spending more time in retirement. By saving more now, you'll be prepared no matter what happens.

2. You may not be able to rely as much on Social Security

The Social Security program is facing a cash shortage because the money coming in from payroll taxes isn't enough to fully fund current retirees' benefits. The Social Security Administration (SSA) has been tapping into its trust fund to cover the deficit, but those trust funds are expected to be depleted by 2034, according to the SSA Board of Trustees' latest estimates. When that happens, payroll taxes will only be enough to cover 76% of projected benefits.

The coronavirus pandemic could also exacerbate the problem because so many people are out of work and not paying payroll taxes. This means the SSA may need to dip further into its trust funds to continue paying out benefits, and those funds could be depleted even sooner. In fact, one study from the Bipartisan Policy Center found that as a result of the COVID-19 pandemic, the trust funds could run out of money as soon as 2028.

This month, President Trump is proposing that payroll tax cuts be included in any new COVID-19 stimulus legislation. This proposal is unlikely to pass in the House, but if payroll taxes were cut, that won't play out in Social Security's favor. When there's less money coming in from payroll taxes, not only will the trust funds run dry sooner, but there will also be less money that can be paid out in benefits once the trust funds are depleted. So benefits may be reduced sooner than expected, and your future monthly checks could be even smaller.

As you're planning for retirement, it's a good idea to assume you won't be able to rely on Social Security as much as you think. That means it's wise to boost your savings now so you can retire comfortably even if benefits are reduced.

3. Your retirement investments may have taken a tumble

The stock market experienced one of its worst first quarters in history earlier this year, and although it has bounced back somewhat since then, it's still volatile and anything can happen.

If your investments have taken a hit recently, you may need to save more per month to reach your retirement goals, especially if you plan to retire within the next few years. If retirement is still decades away, your investments should bounce back eventually and you may not need to supercharge your savings right now. But if you're planning on retiring relatively soon, it might take more effort to get your savings back on track.

Saving for retirement is never easy, and the coronavirus pandemic can make it much more challenging. By keeping an eye on your savings and adjusting your plans as necessary, though, you can ensure your retirement stays on track.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.