Retirement savings were identified as a source of financial relief in the thick of the coronavirus pandemic when the CARES Act expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans.
Luckily, only 2.8 percent of employees made an early withdrawal during the first half of the year, according to research by the Investment Company Institute.
“We see a slight increase in withdrawal activity following the onset of economic volatility and hardship, but the increase is much smaller than you might expect, given the severity of the COVID-19 economic downturn,” said Sarah Holden, ICI senior director of retirement and investor research.
Retirement contributions, however, weren’t as fortunate. Over half of employees changed their retirement contributions or plan to do so soon, with 23 percent already contributing less, according to research by MassMutual.
COVID-19 Retirement Impact: Early Withdrawals and Reduced Contributions
Employees told MassMutual these are the primary reasons they’re making changes to their retirement contributions:
- 54 percent reduced contributions to have more cash on hand
- 22 percent plan to contribute more to take advantage of market fluctuations
- 24 percent plan to contribute the same amount but change their risk exposure
Nearly 40 percent of employees recognize that they need to make saving for an emergency a priority because they found themselves unprepared for the pandemic. Reducing retirement contributions could allow them to start building the emergency savings funds they need.
Another survey by Freedom Debt Relief at the start of the coronavirus pandemic highlighted the financial obligations employees were most concerned about:
- 45 percent worried about missing rent or mortgage payments
- 38 percent worried about missing utility payments
- 30 percent worried about missing health insurance premiums or student loan payments
- 36 percent worried about carrying a balance on their credit card for groceries
- 21 percent worried about carrying a balance on their credit card for utilities
- 18 percent worried about carrying a balance on their credit card for TV/Internet
Reducing retirement contributions can help employees catch up on missed payments and halt excessive credit card use, but it comes at the expense of their plans for retirement.
COVID-19 Retirement Impact: Retirement Outlook
A whopping 70 percent of employees report that the pandemic has made them more pessimistic about their retirement plans, according to research by The Alliance for Lifetime Income. That percentage is more harrowing when it’s considered that the survey sampled those with a minimum of $100,000 in assets. Only 33 percent of them are confident they’ll have enough to cover all their expenses in retirement and 20 percent have decided to retire later than initially planned.
Financial Stress and How Best Money Moves Can Help
Employees at every career stage are experiencing unprecedented levels of financial stress during the coronavirus pandemic. They need help navigating the financial challenges the crisis has presented and they need guidance to help them get back on track to reach their financial goals.
Best Money Moves is a mobile-first financial wellness program with the knowledge and support employees need to help them reduce their financial stress and live their best financial lives. It has a library of over 700 calculators, articles and videos as well as a budgeting tool that does the math to tell workers what their neighbors are spending in the same category. Plus, Best Money Moves is gamified, featuring a point-based rewards system where users earn points every time they log in, work with their budgets, read articles and measure their stress. Each point translates into a chance to win a monthly contest.
Sign up for a demonstration here to learn how Best Money Moves can bring financial wellness to your company.
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