The Transamerica Center for Retirement Studies recently conducted an online survey of more than 6,000 people in the U.S. and found that many are feeling financially vulnerable.
Americans are feeling a distinct lack of confidence, particularly when it comes to retirement. Whether employed or unemployed, the survey found that 23% of workers are no longer certain they can retire comfortably following the coronavirus pandemic.
Not unsurprisingly, the insecurity was highest for baby boomers, born between 1946 and 1964, who are closest to retirement—32% said their confidence in their ability to retire has gone down due to COVID-19. Meanwhile, 25% of Generation X, those born between 1964 and 1978, said their retirement confidence has declined, and 20% of millennials, people born between 1979 and 2000, said the same.
The research also uncovered the average amount that each generation has put away in savings toward their retirement years. While millennials have a median of $23,000 saved in all household retirement accounts, Gen Xers had a median of $64,000, and boomers $144,000.
The study found that survey respondents also had some money saved to use toward emergencies. Millennials had a median of $3,000 set aside, while Gen Xers had $5,000 and boomers had $15,000 in emergency funds.
Despite having some emergency money, around 22% of survey respondents said they have taken or plan to take a loan or withdrawal from a 401(k) or other workplace retirement savings account to pay for living expenses like their mortgage, rent or food during the pandemic. Millennials were most likely to take such withdrawals, at 33%, compared to 15% of Gen Xers and 10% of baby boomers.
In part, this may be because recently-enacted legislation, the CARES Act, allows those impacted by the coronavirus to withdraw funds from 401(k)s up to $100,000 without the 10% IRS penalty for withdrawals for people under the age of 59-1/2.
Keep in mind that even though there is no 10% IRS penalty for withdrawals from workplace retirement plans, income taxes will still be due on the money withdrawn, which can be paid to the IRS over a period of three years if needed. Or the withdrawn money can be returned to the plan over three years with no taxes due per the CARES Act.
It’s important for people considering withdrawing money from their retirement accounts to remember a couple of things. One, the CARES Act doesn’t actually mandate that a workplace retirement plan has to allow hardship withdrawals for those impacted by coronavirus—it is up to each individual plan administrator whether or not they will allow withdrawals.
Two, the rules about who will qualify for these withdrawals if allowed by the plan are: being diagnosed with COVID-19, having a spouse or dependent diagnosed with COVID-19, or experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19.
Experts remind people that those taking withdrawals need to follow all rules, or they will have to pay income taxes on the money withdrawn and owe the 10% penalty.
If you have any questions about the current retirement situation in America and what you can do now to protect yourself and your retirement savings, please contact us for a complimentary consultation.
Retirement planning is one of our focus areas, and we are here to help you as well as your family members and friends.