Connecticut Money: Pandemic hurts confidence in retirement savings

This article was published in the New Haven Register on July 3, 2020.

The coronavirus pandemic is taking a toll on retirement confidence, according to an April
survey by Transamerica Corp. One in three baby boomers and one in four Generation Xers
say they feel less confident they will be able to retire comfortably.
On the positive side, 53 percent said the pandemic has not changed their outlook, and 13
percent said their outlook actually has improved. The April survey of American workers
was produced as a supplement to the 20th annual Transamerica Retirement Survey of
Workers from December.

While seven in 10 respondents said they are saving for retirement, 56 percent said the
pandemic is negatively impacting their savings rate. Other financing sources being affected
include credit cards (29 percent of respondents), unemployment benefits (26 percent), and
federal stimulus money (24 percent).
Fifteen percent have withdrawn money from their 401(k) plan or other employment
retirement savings accounts, while 13 percent plan to do so.

The survey contains plenty of worrisome information. Take the baby boomer generation,
those close to retiring and those working past retirement age. According to the survey, the
median amount saved in all baby boomer household retirement accounts is just $144,000,
and the median percentage of annual salaries devoted to retirement savings is just 10
percent. In fact, 37 percent of baby boomers said they expect Social Security to be their
primary source of income in retirement. In addition, seven in 10 baby boomers are either
working past retirement age or expect to do so.

Unfortunately, these numbers do not inspire confidence that many of these baby boomers
will enjoy a comfortable retirement. For younger workers who hope to improve on these
numbers, here are some retirement planning tips:

Don’t count on your ability to continue working. While 37 percent of millennials
and Gen Xers expect some amount of retirement income from working, studies have
consistently shown that fewer than 30 percent of people continue to work after retirement
age, and the median retirement age has remained at 62 for many years. In fact, four in 10
workers end up retiring earlier than planned due to health reasons, job losses or family
issues, according to the 2019 Retirement Confidence Survey by the Employee Benefits
Research Institute.

Understand the three sources of retirement income. Financial security in
retirement will require three separate flows of funds: Withdrawals from employer sponsored savings accounts such as 401(k) plans, withdrawals from personal savings and
investment accounts, and Social Security payments.

Build savings and investments steadily. The first rule of retirement savings is to
invest at least the maximum amount your employer will match into your 401(k) plan. After
that, you should invest at least 20 percent of your current income into your personal
savings and investment accounts, including an IRA. You can’t control what will happen to
Social Security payments, but you can control how much of your income you set aside for
your future. Find ways to cut expenses and/or increase income.