Most people have not stopped saving for
retirement, but more are saying they will stay on the job past the traditional
retirement age
September 3, 2020 By Emile Hallez
Retirement savers are
anticipating a long-term financial fallout from the COVID-19 crisis, but most
have not cut back on 401(k) contributions, several recent surveys show.
More than half of U.S.
workers — 54% — say they plan to continue working during
traditional retirement years, with many saying their plans to do so have been
influenced by the pandemic, according to a survey released Tuesday by Voya
Financial. Gen Xers were most likely to say they would continue working, at
60%, the report noted, while 59% of baby boomers and 49% of millennials said
they would work into their retirement years.
That survey was conducted
among more than 1,000 adults by market research firm Ipsos between March 25 and
July 31.
But few people have reduced
their retirement plan contributions or stopped saving entirely. According to
data from record keeper Ascensus, 1.4% of participants in small-employer
retirement plans stopped contributing between January and July, while 2.1%
reduced their contribution rates. However, 4.5% of people increased their
savings rates during that time frame, according to Ascensus, which pulled data from its
plan business.
“We saw notable shifts in
savings plan contributions and withdrawals in the first few months of the
outbreak, as individuals experienced changes in employment and braced for the
potential financial fallout,” the Ascensus report said. “Throughout the summer
months, we’ve started to see some very early signs of recovery. Employers that
dialed back matching or discretionary contributions to their retirement plan
are reconsidering this decision.”
Most employers have not
reduced the matching contributions they provide for employees, and some of
those that did have since reinstated them, according to Ascensus.
Between March and July,
there was a 5.5% decrease in total employer contributions to 401(k) plans, but
that is more than 2 percentage points higher than the decrease as of the end of
June, reflecting matches being reinstated, the company noted.
Further, only a small
proportion of workers have taken the coronavirus-related distributions or plan
loans allowed by the CARES Act, according to the record keeper. Just 2% of
workers have taken the distributions, and about 1% have taken loans, Ascensus
data show.
“These factors suggest that
savers could be using other means to manage financial needs through this period
or that they’re delaying otherwise planned retirement or job changes,” the
report read.
OTHER SAVINGS DOWN
While workers appear to be
prioritizing retirement contributions during the crisis, they are placing less
attention on other financial objectives, such as college savings, the report
suggests.
Between March and July,
overall one-time contributions to 529 college savings accounts were more than
16% lower than during that time frame in 2019, according to Ascensus. Leading
up to the COVID-19 crisis, those savings had been rising, with one-time
contributions to 529 plans up nearly 18% in January and February compared to
the same period in 2019.
The lower level of recent
contributions is likely influenced partly by the remote classroom reality
facing college students. With many institutions operating remotely, some of this year’s high school
graduates are taking gap years or reconsidering college.
Many people have burned up
their emergency savings during the pandemic, something that has hit older
workers hardest, according to a survey of
more than 5,000 people published Tuesday by CNBC and Acorns.
Paying down debt also
became less of a priority, at least compared to saving for retirement, Voya’s
survey found. Fifty-five percent of respondents said they would rather have
enough money saved for retirement rather than go into retirement with no debt.
However, only about half of
workers said they have a retirement plan, according to that survey.
401(K) INFLUENCE
Having a retirement plan at
work has a significant effect on savings behavior, according to a separate report this
month from Cerulli Associates. The employer match has a big role in that, with
66% of 401(k) participants surveyed saying they would almost certainly bump up
their contribution rate to take advantage of a larger company match — if, for
example, the matching formula went from 3% to 5%, according to the report.
Nearly half of those survey
(46%) said they started saving in the employer plan because of the match,
Cerulli found.
Further, 32% of
participants said they would be encouraged to save more if a personalized
report from their plan provider gave projections based on their current savings
showing they will have too little saved for retirement, the survey found.
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