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Tags: Is COVID-19 Retirement Aftershock the Next Crisis

Is COVID-19 Retirement Aftershock the Next Crisis?

financial retirement aftershocks

(Lars Pettersson/Dreamstime)

Clara Del Villar By Wednesday, 15 April 2020 11:26 AM EDT Current | Bio | Archive

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

At the end of 2019, Americans had almost $33 trillion of retirement savings in pensions, 401(k)s and IRAs.

It 's difficult to fathom such a large number.

So imagine the height of a stack of 33 trillion dollar bills, it would equal 2.3 million miles.

Distributing this heft sum to all 330 million Americans equates to $100,000 for each of us.

These retirement resources accounted for 34% of all U.S household financial assets.

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 years old ranged from zero to $60,000 leaving these families unprepared for a comfortable retirement, even when one factors in 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 middle and low income workers are dealing with potentially catastrophic consequences.

While we wrap our heads around the scale of this highly contagious virus which is taking and changing lives as well as livelihoods in our country, we can use this national stay at home period to share productive ideas and restore confidence in a successful recovery.

It's hardly reassuring for Americans to watch like sports scores — the daily tally of coronavirus cases and deaths on cable channels and news sites.

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% 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 remain 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) State and local governments are overwhelmed with coronavirus healthcare costs and devastating business revenue losses. Even with a strong economy, state and local administered pension plans began 2020 with nearly $6 trillon of unfunded liabilities, how can those holes ever be filled?

Only through economic growth and state budget discipline can contributions in these funds resume, helping to ensure retirees are made whole over 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 over.

They had reached a high of almost 7% of our total workforce.

Seniors want to stay productive but many are also be counting on these wages.

These needs don’t evaporate in a crisis. They become more urgent.

A nation experiencing economic disability has difficult choices ahead. COVID-19 has clearly taken many lives. It will take more.

Unfortunately, seniors and those with compromised health seem to be in the bullseye of this current virus.

Thus, shelter in place directives for this vulnerable population are the most rational and moral response.

However, retirees may also be equally vulnerable to becoming economic victims.

The discussion of reopening the economy will be contentious and difficult. But the dialogue can also be rational.

We must not downplay health effects of desperation and depression among the unemployed.

Though it may not physically be equal to an ICU emergency, the mental stress that economic angst produces carries its own dangers.

Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation. Her financial industry career included senior roles in Investment Management, Private Asset Management, and Capital Markets. Her entrepreneurial ventures involved digital media as Founder, CEO of The Hispanic Post; energy tech as founder of InEnergy and health tech. She is a former advisor at 60Plus Foundation. Currently, she is a Board Director at General American Investors Co. and Executive Committee of Weill Cornell Women’s Health Symposium. She earned a BSFS at Georgetown University. To read more of her reports — Click Here Now.

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The shutdown highlights existing retirement readiness dilemmas ahead for current and future retirees. Though not physically equal to an ICU emergency, the mental stress that economic angst produces carries its own dangers.
Is COVID-19 Retirement Aftershock the Next Crisis
Wednesday, 15 April 2020 11:26 AM
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