COVID-19 Is Not a Retirement Story

A hot topic these days is how COVID-19 and the ensuing recession have affected retirement. The surprising answer may be Ònot very much.Ó On the benefit side, Social Security payments continue to go out each month, and 401(k) balances appear relatively unaffected. On the income side, the impact on Social SecurityÕs finances has been minimal, and employee and employer 401(k) contributions remain relatively steady. In terms of the labor market, recessions inevitably increase unemployment, but this recession has not hurt older workers more than other groups. The conclusion that COVID is not primarily a retirement story does not mean that all is right with the world. The problems confronting the retirement system before the pandemic remain. Social Security continues to face a 75-year deficit and the depletion of the trust fund in the mid-2030s. Employer plans continue to face inadequate balances, a major coverage gap, no decumulation mechanism, and low interest rates. And older workers continue to face difficulties in finding new jobs, causing many to retire too early. Most important, the reason for COVIDÕs lack of impact on retirement is that people who have the least have borne the brunt of the downturn. The discussion proceeds as follows. The first section summarizes Social Security finances before the pandemic and the actuariesÕ reassessment of the programÕs financial status in the wake of COVID. The second section turns to employer-sponsored plans, summarizing the challenges before COVID and examining adverse developments that could have happened but did not. The third section shifts to the labor market to show that while older workers have suffered, they have not been hurt disproportionately and appear as able to work from home as their younger counterparts. On the other hand, those with the least education Ð workers least likely to have a 401(k) Ð have borne the brunt of the recession. The final section concludes that COVID is not a retirement story, but the pre-COVID weaknesses in the retirement system remain. In addition, the continued decline in real interest rates has made it even more difficult to save for retirement, and the increased stress on state and local government finances makes it more difficult to fund public sector defined benefit plans.