Findings from the Society of Actuaries’ latest biennial survey examining the retirement risks by those nearing retirement and those already retired reveals significant differences in how the pandemic affected the two groups.
“The impact of this crisis is complicated because while it caused economic turmoil and unemployment, it also coincided with a stock market gain and reduced spending, both of which can have a positive financial impact on older adults who hold investments,” the SOA explains in its corresponding summary report, 2021 Risks and Process of Retirement Survey.
SOA notes that, as it has seen in prior research, retirees were found to be less worried about their finances than pre-retirees, but the gap between retiree and pre-retiree concerns was significantly higher in 2021. In fact, retirees’ levels of concern about most retirement risks are down significantly from 2019, the study notes. For instance, two areas that retirees were less concerned about than in 2019 were their ability to maintain their standard of living in retirement and their ability to fund health and long-term care needs.
Better Than Expected
Despite the pandemic, a large majority of retirees report that they are doing either “the same or better” now than they expected when they were working. They also feel they are doing the same or better compared with two years ago.
For example, nearly half (47%) feel that their financial situation meets their expectations and another 40% feel that they are doing better than expected. SOA notes that this view is not universal, however. For instance, while almost half of black respondents (45%) say their financial situation meets their expectations, only 29% say they are doing better than expected.
Additional findings show that while a majority of both pre-retirees and retirees felt the pandemic had no effect on their financial situation, there were significantly more who said the pandemic had a negative effect than those who saw it as a positive effect. In this case, a larger percentage of pre-retirees (27%) than retirees (18%) feel the pandemic has negatively affected their financial situation, while only 13% of pre-retirees and 11% of retirees feel it had a positive impact.
When looking to the future, however, a larger percentage of black (28%) and Hispanic (19%) respondents thought the pandemic would have a positive impact on their financial situation, compared to white (8%) and Asian American (12%) respondents.
Consequently, pre-retirees are more likely than retirees to plan to make changes because of the pandemic. The likeliest changes were in lifestyle (27% of pre-retirees compared with 18% of retirees) and expectations to work longer (17% of pre-retirees only).
Economic, Racial and Ethnic Differences
Not surprisingly, economic status—particularly income level—had a “pervasive effect” on many aspects of the study, SOA further notes. Both pre-retirees and retirees with lower income and asset levels tend to show higher levels of concern across a range of financial issues.
Close to half (45%) of those with incomes over $75,000 feel that they are faring better now than they were two years ago, compared to only 19% of those with incomes under $35,000.
Differences in results by race and ethnicity existed, but they were less predictable than results by income. Here, the findings show that the pandemic was more likely to have a negative impact on the finances of black and Hispanic pre-retirees compared with whites, as well as on those with incomes under $100,000 compared with higher-income individuals.
Unexpected Financial Shocks
The study also sheds light on the vulnerability of pre-retirees and retirees to financial shocks in retirement and how people manage them.
Approximately half of the pre-retired population report experiencing some type of unexpected financial shock, as well as more than 4 in 10 retirees. One in five pre-retirees report that these shocks have reduced their assets by 25% or more and reduced their spending by 10% or more. However, far fewer retirees report these reductions. For example, just 1 in 10 retirees (11%) report that shocks reduced their assets by more than 25%.
In addition, when asked what they could afford to spend without jeopardizing their retirement security, half of pre-retirees report that they could only afford to spend $10,000 or less. In comparison, more than half of retirees could afford no more than $25,000.
Black pre-retirees (61%) are more likely than pre-retirees in general (40%) to be impacted by an unexpected expense of up to $10,000. Among retirees, black (58%) and Hispanic (52%) respondents said they are not able to spend $10,000 without it affecting their retirement security. This was much greater than the general retiree response (32%), the study notes.
All in all, while the study raises questions about the short and longer-term impact of the pandemic on retiree finances, SOA notes that it likely will take two to three more years to understand the longer-term impacts. The findings are based on an online survey conducted by Greenwald Research in June 2021 of more than 2,200 individuals (1,061 pre-retirees and 1,168 retirees) ages 45 to 80.
