Nearly six in 10 Americans (58%) say the economic impacts of COVID-19 are having a negative effect on their retirement savings according to a new study from Allianz Life released May 28.
The study finds the COVID-19 pandemic is drastically changing how Americans view their retirement prospects and many fear the worst is still yet to come—at least in the short-term. More than half (54%) say they are worried the market hasn’t bottomed out yet.
According to the Q2 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America, worries over market volatility’s impact on their 401k and other retirement accounts were steadily increasing over the past year, currently at 42% (up from 37% in this time last year). At the same time, the number of people who are worried about a major recession is at its highest levels in over a year, now at 65% (up from 48% in Q2 2019).
It’s not all bad news, however, as a surprising seven in 10 (69%) respondents say they still feel optimistic that there is time to rebuild their nest egg, even if the market continues to drop.
“There was definitely angst about market swings before COVID-19, but the economic impacts of the pandemic are having a devastating effect on retirement saving,” said Kelly LaVigne, vice president of Consumer Insights, Allianz Life. “People are reassessing their financial strategies in light of current risks, and unfortunately, almost half [45%] say they have either reduced or stopped saving for retirement altogether because of the pandemic. The good news is people seem to be taking a long-term view and looking ahead to what’s next.”
Considering the spike in unemployment (with Americans filing more than 40 million jobless benefits claims in the past 10 weeks), it is not particularly surprising that such a high percentage of Americans say they have had to reduce or stop contributions to retirement accounts.
Looking ahead to a recovery
While some may be making the difficult decision to divert funds from retirement saving into more urgent needs, others are looking ahead to how they can take advantage of the current situation and make up lost ground.
Interestingly, an increasing amount of respondents say now is a good time to invest in the market, currently at 42%—its highest level in a year (38% in Q1 2020; 34% in Q4 2019; 35% in Q3 2019; 37% in Q2 2019). But still over half (52%) said it is a good time to stay neutral and not take any action with their investments, and 44% are keeping what they have invested in, but not adding any new money at this time.
Impacts of the pandemic
Few could have predicted the full breadth of financial strain the country would undergo as a result of the pandemic, and the majority of people (57%) say they wish they had a better financial plan in place before the pandemic hit.
“The events of the past few months put a spotlight on the need for building risk management and protection into a portfolio,” said LaVigne. “While these types of black swan events are few and far between, people should start to think about how they can protect their retirement savings from unanticipated events because unfortunately, they do happen.”
Increased focus on protection
After the end of the bull run and subsequent major market drops, many people are shifting priorities and looking at protection products, according to Allianz, which was the No. 1 seller of fixed indexed annuities in 2019 for the 11thconsecutive year, according to the Secure Retirement Institute.
Over seven in 10 (72%) say the effects of COVID-19 on the economy are making them rethink how to better protect their retirement savings from market volatility.
At the same time, the number of people who agree that it is important to put some money into a financial product that offers a balance of potential growth and some level of protection jumped to 32% from 27% in Q1. Further, 45% say they are willing to give up some potential gains for a financial product that protects a portion of their retirement savings, up from 38% last quarter.
“Market volatility over the past 6-8 weeks should serve as a wake-up call to anyone who doesn’t have protection against risk built into their retirement portfolios,” LaVigne said.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
