Market volatility driven by the COVID-19 pandemic and a contentious U.S. presidential election have struck fear in pre-retirees about their ability to save for the future, according to new survey results. 

Principal Financial Group’s quarterly Retirement Security Pulse Survey, which looks at consumer concerns surrounding their retirement savings, finds that nearly two-thirds of workers anticipate the pandemic will impact their path to retirement. 

While most retirees feel they can live comfortably over the coming months, that confidence wanes when they think longer term. According to the third quarter findings, nearly 40% of workers and 60% of retirees report having enough in their emergency savings to pay expenses for more than seven months. Furthermore, 9 out of 10 report that they could cover an unexpected expense of $2,500 or more. Yet only 54% of workers are either “very or somewhat” confident when asked whether they believe they have enough money saved to live comfortably in retirement years. 

Staying the Course

One positive finding is that consumers’ concern with market volatility has lessened over the past quarter and the majority continue to stay the course with their investments. During the second quarter, 34% of workers were “very concerned” about market volatility, but that level dropped to 28% for the third quarter. 

Half of workers report that they have not made any financial decisions or changes in the last few months, while 14% say they increased their deferral percentage on their retirement savings account. Another 12% said they met with their financial professional regarding their retirement savings and investments. 

In addition, 8 out of 10 consumers report that they did not withdraw any extra money from their accounts in the past four months due to the effects of COVID-19 and market volatility. Among workers who did, 9% say they withdrew from an emergency savings account, while 3% say they took a distribution from a retirement account. 

Looking Ahead

Nevertheless, new concerns have arisen related to COVID-19. As the pandemic wears on, workers are finding themselves less prepared emotionally and financially for market volatility. In the second quarter, 45% of workers indicated that they are emotionally prepared for market volatility, but that level dropped to 39% in the third quarter. 

Not surprisingly, workers’ concerns focus on the long-term financial implications for themselves, their families, their communities and the U.S. economy, including concerns with small businesses in their community staying afloat.

“Cautious” is the most common sentiment regarding the economic outlook for the next year. Six in 10 workers and retirees feel cautious regarding the economy and express concern that the U.S. may enter a recession in the near future. 

Consequently, 75% of consumers tell Principal that they plan to make changes to their financial health as a result of COVID-19 and market volatility. The top changes consumers plan to make include: 

• creating an emergency savings account (16% up from 13% in Q2); 
• meeting with their financial professional (17% up from 13% in Q2); 
• looking at their financial accounts more frequently (34% up from 22% in Q2);
• saving more money (27% up from 15% in Q2); and 
• paying down debt (26% up from 12% in Q2). 

As for how workers plan to create an income plan for retirement, 46% say they plan to work with a financial professional; 30% say they plan to search online for tools to start planning; and 23% say they plan to “wing it and go with my gut.”

Few (17%) retirees, meanwhile, have reevaluated their retirement income plan due to COVID-19. Of those who answered yes, 77% said they reduced their monthly expenses. 

Additionally, retirees share that they struggle with imagining their life in retirement and aren’t sure how they’ll spend their time, Principal observes. “Mixed with the added challenges retirees face in today’s environment (e.g., not being able to travel to see family and managing health care and long-term care costs), retirees may be looking for simpler options and extra guidance,” the study notes. 

As such, the study advises that helping retirees better understand how to plan for RMDs and what lifetime income options are available may help. For example, Principal’s research shows that 46% of respondents report that owning an annuity brings them “peace of mind.”

Meanwhile, “start planning early” is the top advice consumers would give to their younger selves. “Consumers also advise finding ways to be life-long learners of finances, health and wellness, to stay healthy and find the balance of saving for the future of living for today,” the study notes. 

Phase three of the pulse survey was conducted from Aug. 24 to Sept. 7, 2020, among 639 U.S. residents age 25 or over who have a financial product or service with Principal, with a balance of 60% workers and 40% retirees. 

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