The Covid-19 pandemic has affected many Americans’ concerns and plans for retirement. The pandemic’s impact has been uneven, with some workers enjoying the newfound freedom of working from home, allowing them to extend their careers without the dreaded commute, while others have lost their jobs or decided to take early retirement as a result of health concerns.
“The economic fallout from the pandemic may create substantial uncertainty about financing retirement that could trigger Americans to work longer or rethink retirement altogether,” according to a new report from the National Institute on Retirement Security.
The report, “Retirement Insecurity 2021,” details the results of an online survey of more than 1,200 working adults conducted in early December 2020 by Greenwald Research. The survey found that two-thirds of Americans (67%) say the nation faces a retirement crisis and more than half (56%) are concerned that they won’t be able to achieve a financially secure retirement.
Among Americans who have changed or considered changing when they will retire, 67% say they planning for retirement later than originally planned because of Covid-19, according to the NIRS report.
Yet for some older workers, the health and economic challenges of the pandemic proved to be too much, driving an unprecedented wave of Baby Boomers to leave the workforce. Between February and September of 2020, the number of retired boomers increased by 1.1 million, compared to only 250,000 who retired during the same period in 2019, according to a Pew Research Center analysis of labor force data.
Many newly retired boomers are looking for ways to maximize their retirement income and are turning to financial advisers for help.
The first question most ask their advisers is when and how they should file for Social Security, said Jack Sharry, chief marketing officer at LifeYield, a technology firm that helps financial advisers optimize retirement distributions. During 2020, the number of financial advisers who use the LifeYield Social Security Advantage software more than doubled, to 90,000, he said.
If the answer to the question about filing for Social Security is to defer benefits, the next question is how to fund their retirement years before Social Security benefits begin.
Early retirees tend to fall into one of two camps, Sharry observed. Those without sufficient savings usually file for Social Security benefits immediately, forcing them to live off reduced payouts for the rest of their lives. Others may have enough assets to allow them to delay claiming Social Security benefits but need guidance about how much they can afford to spend from savings each year before benefits begin.
Social Security retirement benefits are available as early as age 62 but are permanently reduced by 25% or more for life compared to claiming full benefits at full retirement age. Individuals who postpone claiming benefits beyond full retirement age earn an extra 8% per year in delayed retirement credits up to age 70.
In 2017, more than 60% of Americans filed for reduced benefits before full retirement age and only about 5% waited until age 70 to claim maximum benefits.
A recent study by United Income estimates that today’s older Americans will lose a total of $3.4 trillion in potential income because of claiming Social Security early, with an average lifetime loss of $95,000 per household.
More than two-thirds (69%) of Americans believe the Covid-19 pandemic will have a greater overall economic impact than the Great Recession of 2007-2009, according the newly released 2021 Retirement Risk Readiness Study from Allianz Life Insurance Co.
“Although the full story of this pandemic won’t be known for some time, it is clear that the financial security of many Americans has been severely compromised,” Kelly LaVigne, vice president of Consumer Insights at Allianz Life, said in a statement accompanying the study. “It’s crucial that Americans use this opportunity to consider any new risks that could affect their retirement planning and develop strategies to help mitigate those risks and future unexpected events.”
This article is part of a series of special reports appearing in the March 15, 2021, edition of InvestmentNews.