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.
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.