Americans of all ages are facing financial struggles due to the coronavirus as the great lockdown necessitated by it has led to record unemployment, an economic recession, and unprecedented volatility in the stock market.
With the virus having such a major economic impact, it's not surprising millions of Americans believe the financial effects will be long term. Sadly, both future and current retirees have indicated their retirement could be affected in some profoundly negative ways.
How the coronavirus is hurting retirement security
According to a survey by the website Personal Capital, there has been a major overall drop in the number of people who feel financially prepared for retirement.
Although 63% of respondents indicated they felt financially prepared for retirement before the pandemic, just 52% now feel they'll be in a good financial position when it comes time to leave the working world.
For most people who haven't yet retired, this growing concern about retirement readiness may be driven in large part by worries about how COVID-19 will affect their savings. In fact, close to 90% of Americans in the survey have concerns about how their nest egg will fare during the crisis as jobless claims rise and concerns mount about another potential stock market crash.
Current retirees also have worries, with 37% of Americans who have left the workforce already indicating they've experienced financial hardship due to the virus. More than a quarter of those in the survey are so concerned about the impact of COVID-19 on their finances that they believe there is an increased chance they'll actually need to go back to work.
What should you do to improve your retirement readiness?
If you're still a long way from retirement and are worried about your readiness, there's plenty you can do to make sure the virus doesn't affect your ability to stop work when you're ready.
First, make sure you have the appropriate asset allocation. Far too many Americans allowed themselves to become overinvested in stocks as the market was going up, and thus they experienced outsize losses in March (which may have driven some of those fears about retirement savings account balances). The market has regained almost everything it lost, giving you a second chance to fix the problem by rebalancing your portfolio so you're exposed to an appropriate level of risk given your age.
Once you've done that, if you simply stay the course and continue contributing to your retirement accounts and investing in companies you believe in (or index funds that track the market), the coronavirus ideally shouldn't have a long-term impact on your portfolio. While this event is unusual, recessions come and go and the market always recovers.
Staying the course may be a challenge if you are out of work and can't continue making retirement account contributions right now. But you can overcome it by increasing contributions after you get back to work to make up for lost time. If you've cut your budget due to a reduction in income, try to continue to live at that lower spending level for a few months while you catch up on retirement contributions.
For those who are retired already and concerned about the virus' impact, there is some cause for worry. COVID-19 may result in a small Social Security raise next year, or none at all. And it may hasten the day when Social Security cuts are necessary due to the program's trust fund running out. Some retirees may also not have fully recovered all of their investment losses from March, even though the market as a whole has rallied.
Still, there are plenty of options. For seniors who have recovered from market losses, it's especially important to maintain the right asset allocation and to have several years of living expenses in liquid cash so you don't have to sell investments during a downturn in case the market crashes again. You can also look at opportunities to make budget cuts in light of the possibility that Social Security benefits continue losing buying power without a COLA -- or in case of a big benefits cut if lawmakers don't act to fix the program's financial woes.
Don't let COVID-19 interfere with your retirement plans
If you're one of the millions of Americans who have lost confidence in their retirement readiness, don't give up hope. You can get back on track by upping your retirement investments as soon as you can afford to, making sure your portfolio is appropriately balanced, and perhaps making some adjustments to your budget. It undoubtedly will take effort, but being ready for retirement is worth it.