Pandemic hurts confidence in retirement savings

The coronavirus pandemic is taking a toll on retirement confidence, according to an April survey by Transamerica Corp. One in three baby boomers and one in four Generation Xers say they feel less confident they will be able to retire comfortably.

On the positive side, 53 percent said the pandemic has not changed their outlook, and 13 percent said their outlook actually has improved. The April survey of American workers was produced as a supplement to the 20th annual Transamerica Retirement Survey of Workers from December.

While seven in 10 respondents said they are saving for retirement, 56 percent said the pandemic is negatively impacting their savings rate. Other financing sources being affected include credit cards (29 percent of respondents), unemployment benefits (26 percent), and federal stimulus money (24 percent).

Fifteen percent have withdrawn money from their 401(k) plan or other employment retirement savings accounts, while 13 percent plan to do so.

Unfortunately, many people were caught unprepared for a financial meltdown: 82 percent of workers carry debt of some kind, and the median amount of emergency savings is just $3,000 for millennials (born 1979-2000), $5,000 for Gen Xers (1965-1978), and $15,000 for baby boomers (1946-1964). I advise clients to build an emergency fund that could pay six to nine months of expenses.

The survey contains plenty of worrisome information. Take the baby boomer generation, those close to retiring and those working past retirement age. According to the survey, the median amount saved in all baby boomer household retirement accounts is just $144,000, and the median percentage of annual salaries devoted to retirement savings is just 10 percent. In fact, 37 percent of baby boomers said they expect Social Security to be their primary source of income in retirement. In addition, seven in 10 baby boomers are either working past retirement age or expect to do so.

Unfortunately, these numbers do not inspire confidence that many of these baby boomers will enjoy a comfortable retirement. For younger workers who hope to improve on these numbers, here are some retirement planning tips:

Don’t count on your ability to continue working. While 37 percent of millennials and Gen Xers expect some amount of retirement income from working, studies have consistently shown that fewer than 30 percent of people continue to work after retirement age, and the median retirement age has remained at 62 for many years. In fact, four in 10 workers end up retiring earlier than planned due to health reasons, job losses or family issues, according to the 2019 Retirement Confidence Survey by the Employee Benefits Research Institute.

Understand the three sources of retirement income. Financial security in retirement will require three separate flows of funds: Withdrawals from employer-sponsored savings accounts such as 401(k) plans, withdrawals from personal savings and investment accounts, and Social Security payments.

Build savings and investments steadily. The first rule of retirement savings is to invest at least the maximum amount your employer will match into your 401(k) plan. After that, you should invest at least 20 percent of your current income into your personal savings and investment accounts, including an IRA. You can’t control what will happen to Social Security payments, but you can control how much of your income you set aside for your future. Find ways to cut expenses and/or increase income.

Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group, LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Investment Advisor Representative, Connecticut Capital Management Group, LLC, a Registered Investment Advisor. Connecticut Capital Management Group, LLC and Connecticut Benefits Group, LLC are not affiliated.