Is COVID-19 Driving Americans to Retire Early?

One of the most surprising — and potentially puzzling — findings in the 2020 Retirement Confidence Survey (RCS) is how confident people remain even today, during the COVID-19 crisis, about their ability to have enough money to live comfortably throughout their retirement years.

The RCS was fielded twice this year: once in January 2020 before the impact of the pandemic was truly felt in the United States and again in late March as the pandemic was becoming a major factor in Americans’ lives. But if one expected retirement confidence to plummet with the stock market — it didn’t. Indeed, among American workers, 63 percent said in late March that they are somewhat or very confident, down only 6 percentage points from January 2020. For retirees, the change was even smaller: 76 percent said they are confident, down only 1 percentage point from January 2020. So why do people remain so confident?puzzle

One clue might be found in questions the RCS posed in March 2020 about employment status change. Eleven percent of survey respondents noted at the time that their employment status had changed in a negative way since February 1st 2020.  Another 12 percent noted that they expected their employment status to change in a negative way within the next six months. Among workers with a negative current or expected employment status change, retirement confidence was markedly lower. Less than half (47 percent) of this group believed they would have enough money to live comfortably in retirement. In fact, their confidence in everything from Social Security to Medicare to paying for long-term care expenses all tanked. In other words, it seems to be employment status, not stock market volatility, that is a driving force in retirement confidence. Thus, retirement confidence could certainly dive precipitously now that tens of millions of Americans are out of work due to COVID-19.

Logically, one might assume that, as a result of the financial implications of both job loss and market volatility, retirement horizons might expand due to COVID-19. However, there is now evidence showing that the pandemic might actually be causing the retirement horizon to contract. At least, that’s the conclusion of Coibion, Gorodnichenko, and Weber in their working paper, “Labor Markets During the COVID-19 Crisis: A Preliminary View.”[1]

According to the authors: “At the height of the covid-19 crisis with a much larger number of people now out of the labor force, we see corresponding declines in the share of homemakers, those raising children and the disabled. However, we see a large increase in those who claim to be retired, going from 53% to 60%. This makes early retirement a major force in accounting for the decline in the labor-force participation. . . this suggests that the onset of the covid-19 crisis led to a wave of earlier than planned retirements.”

At a recent EBRI Research Committee call, reactions to this conclusion ranged widely.  Some were skeptical about the numbers, questioning whether people would really be in a financial position to retire as COVID-19 continues to ravage their defined contribution plans and emergency savings. Others wondered if people simply wanted to take Social Security payments early — and how detrimental that might be for their long-term retirement financial situation. Some pointed out that people could retire only to decide to jump back into the work force at some later time — the so-called revolving or reverse retirement plan — as they realized they missed the social interactions, etc. of the workplace. Finally, there was the consideration that perhaps COVID-19 really was causing a unique spike in retirement, albeit not for a positive reason: Older workers might simply be afraid of contracting COVID-19 or its variants by being in the workplace and prefer to retire, whether ready or not from a financial standpoint, rather than be exposed.

The RCS actually provides contradictory evidence relative to the findings of the Coibion et al. working paper. According to it, the median expected retirement age is 65 for those both with and without a negative or expected negative job status change. So clearly more research is needed here. In the summer, EBRI will field its Workplace Wellness Employee Survey and its Financial Wellbeing Employer Survey simultaneously to dig deeper into the realities of how COVID-19 might be changing the financial security of workers and the retirement landscape.

[1] Olivier Coibion, Yuriy Gorodnichenko, and Michael Weber. Working Paper 27017. National Bureau of Economic Research.

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President and CEO, EBRI

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