The ongoing struggle with the coronavirus pandemic and related recession has already had a tremendous impact on Americans’ mental health and finances — but many foresee longer-lasting effects.
“Nearly 68 million Americans say that COVID-19 has caused them to reconsider their retirement timing,” says a recent study from financial services firm Edward Jones. “Three in 10 of those planning to retire are thinking about retiring later. On average, they anticipate retiring 3.3 years later.”
There are compelling reasons to postpone retirement regardless of a pandemic, but the study found that the financial reasons are most common right now. Following is a closer look at the reasons highlighted in the study.
1. Needing more income
The most obvious and pressing reason that people see to postpone retirement is not having enough of a nest egg.
Continuing to work provides more time to eliminate debt and to stash cash in a 401(k), IRA or other investment vehicle.
It also allows time for your Social Security benefit to grow. If you claim Social Security before what’s known as your “full retirement age,” you’ll see a reduced benefit for the rest of your life.
On the other hand, if you put off retiring beyond that age, you could see a permanent 8% increase to your benefit for each year up to age 70 that you delay claiming benefits, as we detail in “7 Reasons You Should Not Claim Social Security Early.”
2. Reduced savings
Any financial crunch can force people to pause saving for retirement, and the pandemic is certainly no exception.
The study from Edward Jones found “20 million Americans stopped making retirement savings contributions during the COVID-19 pandemic and only a quarter of working Americans were on track with their retirement savings prior to the pandemic.”
It’s easy to think you can just “catch up” later, but the reality is the hill gets steeper every second you delay. This is because you’re not just missing out on the contributions you would otherwise be making to retirement accounts, but also all the interest and growth that comes with it.
More difficult, however, doesn’t mean impossible. Check out “The 7 Fastest Ways to Catch Up on Retirement Savings” and get to work as soon as you can.
3. Lost investment value
Related to missing out on new investments is the risk of diminished returns on the investments you already have.
It’s important to remember that even when the stock market tanks, you haven’t lost money — the loss is only on paper until you sell. Given time, the market will likely recover and surpass its previous levels.
Of course, time is a luxury not everyone has. But the point is that panic won’t serve your retirement goals. Trying to time the market and sitting on the sidelines just because things are scary are two biggies we cover in “5 Mistakes That Will Ruin Your Investment Returns.”
4. More uncertainty about how much retirement income they need
It’s normal to be uncertain about your long-term financial condition right now. Unfortunately, it was also normal before the pandemic — when it didn’t have to be.
“More than three-fourths of those planning to retire haven’t even calculated how much money they’ll need,” the Edward Jones study found.
One way to get a ballpark figure is to peg your savings goals to how much you earn. As we explained in “9 Ways to Rescue Your Retirement in 2020“:
“To fund a nest egg, many investment professionals suggest that people consider saving 10 to 12 times the amount of their last full year of income. By that logic, if you expect to earn $60,000 in your last full year of work, you should set a savings goal of between $600,000 and $720,000.”
That is just one rule of thumb, though. For Money Talks News founder Stacy Johnson’s answer to the question of how much money you need to retire, check out “Your Top 5 Retirement Questions, Answered.”