In a new analysis for CNN, two economists predict that the COVID-19 pandemic will have an even more profound effect on the retirement savings of older American workers’ than the Great Recession did more than 10 years ago.
Martin Neil Baily, a senior fellow at the Brookings Institute, and Benjamin Harris, executive director of the Kellogg School of Management’s Public-Private Interface, explained that in the wake of the Great Recession in 2009, 401(k) balances rebounded after a yearlong freefall. Those hit the worst by the downturn, however, were older workers who were required to take early retirement and were pushed out of the labor market before they were financially prepared or ready to stop working.
“For these premature retirees, the recession meant a hit to their standard of living that has lasted throughout their retirements,” the economists said.
They noted that COVID-19’s impact on retirement likely will be worse and more widespread, however. The economists said that the sheer magnitude of the current layoffs likely will mean that many older workers will lose their jobs and remain permanently unemployed. A late May Census Bureau survey reported that approximately 40% of households with people in their 60s reported losing wages during the pandemic.
“If prior experience is any guide, older workers will have a disproportionately hard time regaining their lost income,” Bailey and Harris said.
Today’s record-low interest rates aren’t helping retirement savers, either, they noted. Although actions by the Federal Reserve to lock in ultra-low rates for the foreseeable future were necessary and prudent, low rates mean that savers will see lower returns on their savings — and lead some workers to contribute less to retirement.