COVID-19 and the Future of Aging: The Finances of Retirees
What the pandemic has meant for retirees' money and the challenges ahead
Editor’s note: This article is the sixth in a weekly joint series on COVID-19 and the Future of Aging from the Milken Institute Center for the Future of Aging and Next Avenue. The articles are Q and As with thought leaders in fields ranging from health care to retirement planning to work to intergenerational relationships.
Milken Institute Center for the Future of Aging: As the pandemic progresses, what issues emerge as the greatest financial concerns for retirees?
Penny Pennington: According to research our firm conducted in partnership with the research and consulting firm Age Wave, older generations have generally faced less financial and emotional disruption than younger generations during the pandemic. Their finances are aided by savings, Social Security and Medicare. They also have the experience and resilience that comes from decades of meeting life's challenges.
On the other hand, our research also found that retirees tend to be willing to do whatever it takes to support family members in need, even when it means sacrificing their own financial security.
With many families hurting due to COVID-19, this tendency could impact many retirees. We found that a fourth of all parents with adult children — twenty-four million Americans — have provided financial support to their adult children due to the pandemic.
"Unfortunately, more than two-thirds of pre-retirees say they have no idea what their health care costs may be in retirement."
Then there's the issue of health care, which is retirees' greatest financial worry. With older Americans more at risk of having severe complications from COVID-19 illness, that concern is likely to grow. This is in addition to illnesses like Alzheimer's, which a third of retirees cite as their greatest health fear — more than cancer, heart attack or contagious diseases including COVID-19.
Unfortunately, more than two-thirds of pre-retirees say they have no idea what their health care costs may be in retirement.
A good financial adviser can guide them through these kinds of challenges to help you reach your goals.
How are retirees adapting and planning for a changed future — one that may include investment uncertainties, work shifts and different expenses — as a result of COVID-19?
Retirees tend to be faring better than others because they rely less on employment income — they're often insulated from financial shocks that impact younger people.
It helps that approximately seventy-eight percent of of retirees own their homes and sixty percent of retired homeowners have no mortgage payments.
However, for some, stay-at-home orders and lockdowns inhibit their ability to have a sense of purpose, which is very important to living well in retirement.
In our work with Age Wave, we identified purpose as one of four pillars to a fulfilling retirement, along with health, family and finances.
The good news here is that while some have found social distance challenging, others have found added purpose in helping family during this time of need — a 'generational generosity' that includes supporting their 'family of affinity' or those they care most about.
Let's not overlook the fact that many retirees are, in fact, working. Not because they need to, but because they want to. More retirees today work on their own terms, often doing work that aligns with their sense of purpose.
If they've lost work due to COVID-19, however, retirees may be looking for other outlets to keep them engaged.
Retirees once might have been considered slow to adopt technology, but it has become essential for them. They get online to connect with family, tutor remotely or to find entertainment. They also use it for telemedicine in ways they never have before.
In the long-term, what can we learn from COVID-19 that can advance policies, practices and behavioral changes to bolster financial wellness?
Even before the COVID-19 pandemic, too many people lacked the financial stability to endure even a minor hardship. Nearly forty percent of Americans don't have enough savings to cover a four hundred dollar emergency response. Many of those same Americans are ones who have been financially impacted by the pandemic.
Financial literacy can help people become more economically stable and flexible.
We've long been concerned that many Americans aren't saving enough to enjoy a secure retirement. That's another issue that COVID-19 made worse; our research has found that twenty million Americans have stopped making regular retirement savings contributions during the pandemic. We need to create opportunities for those people to catch up later.
We've been working with members of Congress to strengthen the retirement savings system by advancing solutions that would expand opportunities for people to save for retirement. For example, increasing the annual 'catch-up' contribution limit would allow people near retirement to make up for years of not contributing to a retirement account or contributing too little.
These changes and others would promote retirement savings, help people catch up from COVID-19-related hardship and reduce Americans' reliance on public safety nets.