According to the National Bureau of Economic Research, the COVID-19 crises could invite numerous systemic changes that may improve retirement security. Olivia Mitchell, renowned professor at the University of Pennsylvania, said that health insurance and pension plans might be taken over from employers so that workers aren’t at risk of losing their insurance coverage or lowering their retirement savings, in case they lose their job.
Policymakers may help in making a financial decision and give consumers better data around financial products and pricing. Safety nets may be highlighted to help people who lose their jobs and safeguard them from facing any financial crises. She did an analysis and suggested that there are few ways to rebuild the retirement system and make better pension and healthcare plans.
Now the bad news. Mitchell wrote, “No one is thinking about society yet. The federal government and health officials still have no idea about the duration of the ongoing pandemic, and no one can tell when the ‘new normal’ will begin.” Before the COVID-19 epidemic, the retirement industry was very optimistic, notably when the markets rebounded from the 2008-09 financial crises. The government had initiated new retirement legislation to improve retirement security in December also. But this ongoing pandemic has killed more than 100,000 people in the U.S. alone and has impacted the progress of the nation.
In her report, Mitchell wrote that the coronavirus pandemic’s negative impact is expected to last for decades, as seen in earlier events. Now the federal debt levels are increasing at a faster rate and the employment to population ratio in the U.S. has declined from 60% to 52% in the past four months.
Pensions might be impacted and see underfunding — many of them are already at a higher risk — and it is expected to take years before investment losses can be recovered. The CARES Act has come as a relief and made it easier for workers to withdraw more or get loans from their nest eggs without paying the early withdrawal penalty, which may result in less than retirement. Mitchell said that while some workers may retire earlier than their expectations, others may have to delay their retirement until they have enough savings in their account to support them for their lifetime. “Some workers may voluntarily take retirement early and claim their pensions if they are old enough rather than accepting that there is massive unemployment for some time to come.” If they do so, their retirement benefits will be reduced due to early withdrawal, saving for health in the future. Some workers may plan to phase into retirement and shift to a part-time job or participate in the gig economy while most people take retirement.
Mitchell wrote that the effects on Social Security benefits are still not known. The program faces a decrease in the next 15 years; at that point, beneficiaries may get a payment reduction. Social Security depends on various economic factors like fertility and employment severely impacted by the coronavirus. This issue, coupled with the longevity of this trend, could affect the retirement systems around the world as the elderly rely on the system as a significant source of their income.
From the analysis of one of the researchers at the New School, we know that the U.S economy has seen unimaginable levels of unemployment, and businesses across the country, especially small ones, are closing due to the government-issued lockdown. Many elderly Americans are seeing poverty and all earners, low to high, will be impacted by the pandemic in the form of fewer savings, lost investment income, or unemployment.
Organizations experts in financial planning have suggested ways in which the federal government can help Americans deal with the unwanted retirement planning challenges, especially when the coronavirus pandemic is at its peak. Some of their proposed suggestions are increasing contribution limits so that income savers can prepare and, offering easy access to insurance products, which could help them get guaranteed income, and strengthen their financial literacy so that people are educated enough to make their financial decision for themselves and their futures.