Daily Capital

The Impact of COVID-19 on Americans’ Nest Egg

Financial hardship due to the COVID-19 pandemic has forced 1 in 3 Americans to dig into their retirement savings.

Nearly 33% of Americans have withdrawn or borrowed money from an IRA or 401k during the pandemic, and almost two-thirds used those retirement savings to cover basic living expenses. That’s from a new poll* released today by Personal Capital, an Empower Company, and Kiplinger’s Personal Finance magazine.

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Retirement planners told us that they pulled out significant sums of money: 32% of respondents said they withdrew $75,000 or more from a retirement account, while 58% of those who took loans borrowed between $50,000 and $100,000.

In addition to covering everyday living expenses, people used the money for a variety of expenses:

  • 41% put it toward medical expenses
  • 32% funded home repairs
  • 26% paid for auto repairs
  • 23% covered tuition
  • 21% helped family members

Retirement, for most people, is the biggest financial goal they’ll save for in their lifetime. It often takes decades to financially prepare. For people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.

Pandemic-Induced Changes to Retirement and Investing

Last year’s stock swings — the fastest bear market ever followed by an astronomical recovery — ran many investors and retirement savers’ nerves ragged. Nearly three-quarters of respondents (74%) told us they were worried about market volatility in 2020, and almost half (48%) reported checking their investment portfolio or retirement account balances at least once weekly.

But there were lessons along the way. Investors told us their top five takeaways from the market this year:

  • My portfolio strategy was able to weather the bad times (33%).
  • I need to have more cash reserves (27%).
  • I need to diversify more (26%).
  • I took on more risk than necessary (23%).
  • I need to rebalance my portfolio more often (23%).

Some people may see stock market declines and sell their investments for fear of losing more money. However, the stock market has recovered from every downturn in history; selling prematurely only locks in your losses.

According to Craig Birk, CFP®, Chief Investment Officer at Personal Capital, staying focused on a long-term plan with clear goals is “the best way to navigate what can sometimes be an emotional roller coaster.”

“The market is, after all, rarely driven by just one factor. That’s why it’s so hard to time the ups and downs,” he said. “Investors with a strategic plan can feel more confident about their finances and don’t have to worry about outguessing factors beyond their control.”

As a result of the pandemic, some survey respondents also adjusted their retirement timeline. More than one-third (35%) said they plan to work longer. Considerably more men than women intend to delay retirement: 45% of men plan to work longer, while only 25% of women do.

Indeed, throughout the pandemic, men and women have demonstrated several key differences in their approach to financial planning.

Gender Breakdown of Financial Activities in 2020 MEN WOMEN
Took advantage of COVID relief programs  65% 28%
Took a distribution from their retirement accounts 49% 14%
Borrowed from their retirement accounts 44% 11%
Took more investment risks than needed 38% 9%
Made no change to their stock holdings 42% 76%
Checked their investing and retirement accounts daily 35% 11%
Planned to work longer, so they could save more  45% 25%

Work and WFH During the Pandemic

2020 showed us that life is unpredictable. Millions of people lost their jobs, many with no idea when they’ll be back to work, and many others shifted their workspace to home offices.

In our survey, about four out of 10 respondents were either laid off or had their hours reduced in 2020. About 7 in 10 have been working remotely – mostly from a primary residence (56%) or secondary residence (10%).

Employers take note: Two-thirds of these people love working from home. Only 6% don’t like it at all.

With people spending so much more time at home, some are reconsidering the best location to live. More than a quarter (26%) of workers say they plan to move within the next three years because of the pandemic. The top motivation: Finding a place with fewer people (29%).

How to Control the Financially Controllable

With the wide-reaching impacts of the pandemic, not knowing what will happen next can be unsettling. That’s why having a long-term financial plan — and sticking to it — is more important than ever.

Although there is no way to predict the market, we can use historical returns to make an educated guess about the future. The Personal Capital Retirement Planner looks at your portfolio’s asset allocation and makes projections based on how each has performed over time, taking market cycles into account.

You can also leverage your real inputs — including annual saving, desired retirement spending, time horizon and expected portfolio return, to name a few — in order to get a real-time projection of your long-term portfolio value, as well as when you can reasonably retire.

Millions of individuals and families use Personal Capital’s free tools to track their net worth and plan for retirement. With the digital dashboard, you can:

        • See all of your financial accounts in one place
        • Set monthly spending targets and track your plan over time
        • Plan for retirement given a wide range of scenarios
        • Budget and save for your short-term and long-term goals
        • Analyze your investments and uncover hidden fees

Ready to plan for the retirement you want?

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*The Kiplinger-Personal Capital national poll about Retirement Planning in the Age of COVID-19 was conducted on November 4-10, 2020, with 744 respondents ages 40 to 74, not fully retired, at least $50,000 in retirement savings, and an equal gender split. The online survey has a +/- 3.6%  margin of error and a 95% confidence level. Respondents were screened for age (40 to 74), retirement savings of at least $50,000, and employment status (not fully retired).

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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