The coronavirus crisis has torn the Band-Aid off the financial fragility of many Americans. With an unemployment rate between 15% and 20%, bank accounts draining, and the Dow down 23% in the first quarter, things are dreadful for millions of people. But Americans in their 50s and 60s nearing retirement may be among the most endangered.

Many already weren’t on track for retirement, with little or no savings. Now, the COVID-19 downturn threatens to further undermine America’s vulnerable public and private retirement systems. Long story short: the pandemic is making the retirement crisis worse.

Without strong public policy initiatives, experts say, the already too numerous ranks of the financially insecure will swell even further. But, they add, a few smart and urgent reforms could bolster Americans’ financial security later in life.

“Even prior to the pandemic, things weren’t rosy.”

“The building blocks are there. They are available. The rules we use, and the access to them, are messed up,” says Kurt Winkelmann, senior fellow at the Heller-Hurwitz Institute at the University of Minnesota and co-founder of the investment research firm Navega Strategies.

The Fragile Retirement House

Think of America’s retirement system as a poorly constructed house that has deteriorated with time. Social Security is the financial foundation of retirement, but its trust fund is being rapidly depleted. State and local government pensions were underfunded by $1.2 trillion before the pandemic, according to researchers at the Pew Charitable Trust. About half of private-sector workers lack access to a 401(k) or other employer-sponsored retirement plan.

“Even prior to the pandemic, things weren’t rosy,” says Olivia Mitchell, executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania. Pre-COVID-19, Mitchell’s retirement mantra for the public was: Work longer, save more, expect less. “But I say it now with a vengeance,”  she notes.

One reason why: the disturbing calculation from Michelle Seitz, chairman and CEO of Russell Investments. a global money manager.

Roughly 75% of heads of households ages 55 to 65 had almost no chance of being able to fund their retirement needs out of savings before the pandemic, Seitz noted during a recent Milken Institute webinar. But in the past few months, their finances have been deteriorating, with savings ravaged by market volatility, strapped workers tapping their 401(k)s to pay bills and near-retirees losing their jobs.

The Pandemic’s Blow to Retirement Accounts

Richard Johnson, an Urban Institute think tank analyst, computes that the value of Americans’ retirement accounts has shrunk from over $18 trillion in 2019 to roughly $14 trillion now.

Value of Retirement Accounts, 2007-2020

Fidelity Investments says the market downturn of 2020 has caused average 401(k) balances to fall 19% from the fourth quarter of 2019 and average Individual Retirement Account balances to drop 14%.

On top of that, some major employers with more than 300,000 participants in their 401(k) plans have started suspending the matches they make to employees’ contributions in them. This effectively lowers their rate of return and the potential growth of their accounts. Among the suspenders, according to the Center for Retirement Research at Boston College and the U.S. Department of Labor: Best Buy, Choice Hotels, Lands’ End, Sabre and Tenet Health.

These researchers peg the potential date of the Social Security Trust Fund’s depletion at 2029.

The unprecedented speed of the job-market collapse could push more older workers to file early for Social Security, despite a steep financial penalty for doing so. Social Security benefits are more than 75% higher if you wait until 70 to start claiming rather than 62, the first year you can.

Sure enough, a new paper by three economists (“Labor Markets During the COVID-19 Crisis: A Preliminary View”) found a sharp increase in the number of surveyed unemployed people saying they’re retired — from 53% in the pre-COVID economy to 60% now.

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