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COVID-19 Retirement Aftershock: Will Ripple Effects Turn Into an Earthquake?

Our country’s golden goose has been wounded, not by hubris but by a virus.

At the end of 2019, Americans had almost $33 trillion of retirement savings in pensions, 401(k)s and IRA funds. These retirement resources accounted for 34 percent of all U.S household financial assets. It is difficult to fathom such a large number. Imagine the height of a stack of 33 trillion dollar bills - it would equal 2.3 million miles! And if we distributed this sum to all 330 million Americans, that would amount to $100,000 for each of us.

Our nation’s economic engine and its employment levels over this golden decade were so remarkable that just one firm, Fidelity Investments, reported a record 450,000 of their clients were able to accumulate $1 million in their 401ks and IRA portfolios.

Unfortunately, throughout these good times, median retirement savings for many Americans over 55 ranged from zero to $60,000, leaving these families unprepared for a comfortable retirement, even when one includes Social Security benefits.

The virus lockdown has slammed shut commercial activity Those rosy numbers are history (for now) and the road ahead for everyone is bumpy. Many jobless low- and middle-income workers are dealing with potential catastrophe.

While we wrap our heads around the scale of this highly contagious virus, which is taking and changing lives as well as livelihoods across the world, we can use this national stay-at-home period to share productive ideas and restore confidence in a successful recovery. It is hardly reassuring for Americans to watch a daily tally of coronavirus cases and deaths on cable channels and news sites like sports scores. People should stay informed, but not get lost in the fearmongering.

Retirees especially should take some time during this quarantine to review their retirement plans and consider the impact this virus might have. The shutdown highlights existing retirement readiness dilemmas ahead for current and future retirees.

In this election year, as rescue packages keep rolling out, seniors will be increasingly tempted by ever-greater government spending solutions. But the real path to personal economic solvency is a growing private-sector economy.

  1. Markets have tumbled by 28 percent this year to date. All portfolios take painful hits when chaos and uncertainty surface. It is natural to be rattled. Retiree households with exposure to stocks fear they have less time to catch up and salvage lost savings if this downturn lingers. Volatility often proves too stressful for many savers who cash out of portfolio holdings at the wrong time — locking in losses. Some good news reflected in the recent CARES Act rescue package takes into account the harmful long term impact of liquidating holdings during sharp market downturns. Seniors over 72 will not have to take a required minimum distribution (RMDs) in 2020. Pension funds also invest heavily in equities to improve performance potential and are equally impacted with negative returns. If the economy remains closed for business, this near term market and economic decline can turn into a severe recession or worse - accelerating losses. The key to handling rough waters is for managers and investors to stay steady. Avoid hasty financial decisions, unless a serious emergency shows up in your life. For companies scrambling to rebuild, a future goal may be to actively encourage employee savings vehicles so far fewer people have to cash in valuable retirement funds because of unexpected events.

  2. States and local governments are overwhelmed with coronavirus health care costs and devastating business revenue losses. Even with a strong economy, state and locally administered pension plans began 2020 with nearly $6 trillion of unfunded liabilities. How can those holes ever be filled? Only through economic growth and state budget discipline that can restart contributions in these funds and help ensure retirees are made whole over the decades to come.

  3. We are facing unprecedented and alarming unemployment numbers in the weeks ahead in the nationwide lockdown. No matter how large relief packages or loans are, nothing can replace a full-time job. For many Americans, working beyond middle age is the great unrecognized retirement plan. Until last month, almost every demographic and age category experienced record-breaking employment including the cohort of workers aged 65 and above. They had reached a high of almost 7 percent of our total workforce. Seniors want to stay productive but many are also depending on these wages. These needs don’t evaporate in a crisis. They become more urgent.

A nation experiencing economic disability has difficult choices ahead. The COVID-19 virus has taken many lives and will take more. Unfortunately, seniors, and those with compromised health, seem to be in the bullseye of the virus target. So shelter-in-place directives for this vulnerable population are the most rational and moral response.

Unfortunately, retirees may also be equally vulnerable to becoming economic victims. For this reason, it is essential that any future government response to the economic crisis take retirees into account. The discussion of reopening the economy will be contentious and difficult. But it can also be rational.