June 12, 2020

New Study Shows Pandemic’s Impact on Retirement Planning

A new study by Personal Capital released at the end of May explores the scope of the financial impact of COVID-19 on both American’s savings habits as well as on their retirement accounts.

The study identified many troubling trends and outcomes of this unprecedented two-fold health and financial crisis. They found that 11% fewer Americans feel they are financially prepared for retirement since the pandemic struck. Almost 9 in 10 of the respondents surveyed said that they were “worried” about the impact of COVID-19 on their savings, and 30% said they were “extremely worried.”

Of retirees who were surveyed, 36.9% said that they have experienced financial hardship and 25% said it’s likely that they will have to return to work due to the financial impact of the pandemic.

Personal Capital further found that between the end of January and the end of March, retirement balances fell by -5.8% for respondents in their 80’s, -8.5% for those in their 70’s, and -10.1% for those in their 60’s. For respondents age 60 and younger, retirement accounts fell 10% or more. The younger savers lost a greater percentage likely due to their riskier portfolio allocations, while the smaller losses of those over age 60 are likely due to having more bonds than the younger respondents.

While it sounds like younger savers were hit worse, paradoxically since they still won’t be tapping those accounts for some time their losses aren’t actualized and will have time to recover. Unfortunately, some retirees have seen a material impact on their retirement savings and don’t have the same time-value of compound interest and earnings on their side to recoup losses like their younger counterparts.

One financial tool more seniors are turning to in order to supplement their retirement income is tapping the market value of their life insurance policy with a life settlement. A life settlement allows a life insurance policyholder to sell their life insurance policy to a third party for more than the cash value (what the insurance company would give you if you surrendered the policy) and less than the full death benefit. After a life settlement, the buyer of the policy pays all premiums moving forward, and the life settlement proceeds can be used however is most needed. Life settlements are a regulated transaction, so make sure you are working with a licensed life settlement provider or broker who is licensed in your state. Or if you would like more information on life settlements we have a number of informative articles available and our representatives would be happy to answer any questions.