Cashay logo

Empowering your money

Here's how the retirement landscape for Americans has shifted due to the pandemic: Money, Honestly podcast

Dhara Singh
Reporter

The retirement landscape for Americans has shifted due to the pandemic, with 1 in 3 Americans considering delaying their retirement date by three years. But while retirees are at crossroads for supporting their family financially or preserving their nest egg, some millennial savers have thrived.

Cashay.com Editor Janna Heron sits down with retirement reporter Dhara Singh to discuss how the retirement landscape has shifted for different adult demographics in this latest episode of Money, Honestly podcast.

The podcast is based on upcoming and past reporting Dhara did for Yahoo Money such as America's Social Security crisis is getting worse amid the coronavirus pandemic”.

Janna: This episode of Money, Honestly, by Cashay, is brought to you by USAA. If you're currently serving, a veteran who served honorably, or an eligible family member, they've got your back through every stage of life. To learn more, visit usaa.com.

Hi, this is Money, Honestly. I'm Janna Herron, and today, Dhara Singh, a reporter on my team at Yahoo Finance and Cashay, is joining us. We'll be talking about the changing retirement landscape during the pandemic.

Dhara, thanks for joining us.

Dhara: Thanks for having me.

Janna: So let's start. So here we are, many, many months into this pandemic and we've seen the stock market do crazy things, people are losing their jobs. But what's the status of retirement saving for a lot of people right now?

Dhara: The interesting thing is, that despite the rollercoaster with the stock market we went through earlier this year, and just everything that's going on with more than 55 million people unemployed, filing for unemployment claims, balances have actually increased this quarter, according to Fidelity.

Portrait of smiling woman
Portrait of smiling woman

Dhara: And even just the amount of millionaires rebounded. So if we want to talk about millionaires, specifically this quarter, Fidelity reported 224,000 401(k) millionaires, where last quarter, that number was just 150,000. So although 224,000, isn't a record high, it's fairly close to the record high that was at the end of last year, 233,000. So we definitely saw a rebound there.

And then with even IRAs ... Just as a background, IRAs, these are your pretax retirement accounts that aren't employer-sponsored, but we saw that number stand at 204,000 quarter two, 2020, where quarter one, it was actually 157,000. So we actually saw a great turnaround here, which is surprising because like we had talked about, April, May and June, were very hard for a lot of Americans in terms of jobs.

Janna: And so when you say millionaires, this is people who have accounts that have at least a million dollars in them, so it's either your 401(k) or an IRA account?

Dhara: Yes, yes. That is the case. And just to be clear, this is a sample size, this is representative of just Fidelity.

Janna: Right. They do administer a lot of those retirement accounts, so that probably is a good representation of what's happening.

What about overall balances? Because you said yeah, there's this small number of people who actually have a million dollars in their retirement accounts, but balances in general, how did they do?

Dhara: They also increased. So if we look at, since we were just talking about IRA balances, IRA balances are hovering around 111,500. This is a 13% spike from last quarter. Although it's only a 0.9% increase from a year ago, it's still rebounded from last quarter. And also, your 401(k) plans jumped to 104,400, which is also a 14% of spike. And yeah, it's good news. Especially during the pandemic, something you wouldn't expect.

Janna: That's true. I mean, a lot of this is probably because the stock market, while it tanked in March, and so you also saw it rebound quite a bit?

The CARES Act, originally passed earlier this year, allows you to take up to $100,000 for a coronavirus-related hardship. (Source: Getty Creative)
The CARES Act, originally passed earlier this year, allows you to take up to $100,000 for a coronavirus-related hardship. (Source: Getty Creative)

Dhara: Yeah. So yeah, just some simple ... We looked at how the S&P rose, we saw it increase 21% in the second quarter of this year. And some experts brought in good points. When you have 401(k)s, a lot of the investments may be exposed to FAANG stocks, which are your Facebook, Apple, Amazon, Netflix, Google, along with Microsoft. These stocks have been fairly strong, so it really bolstered the balances there.

Janna: Right, right. Tech stocks have been pretty strong because people are using their Netflix and people are using Amazon, and people need Google or Google Classroom during this pandemic, especially when people were quarantined or shut down. So that makes a lot of sense.

Janna: But like you said, lots of people have lost their jobs or have been furloughed, or you have some kind of reduced income or cut wages because the economy hasn't fully come back, as we've seen. So are there people who even though maybe their balances are rising, they are tapping into their retirement savings because they need the money?

Dhara: Yes. If we just step away just from looking at Fidelity's eyes and we look at even other financial firms, such as Charles Schwab, then we see that they are, overall, they have noticed an uptick in withdrawals, even though it's still less than 10% in their eyes. Yeah, these are COVID-related distributions, and these are loans as well.

Janna: Can you review, didn't the CARES Act make it a little bit easier for people to withdraw or take a loan from their 401(k)?

Dhara: Yes. So the great thing about the CARES Act, originally passed earlier this year, is that if you're going through a tough time financially, due to a coronavirus-related hardship, you can take out up to $100,000 from your 401(k). And this will be excused of the 10% penalty, which is great news for a lot of people. Is it excused from the tax? No. But you have up to three years to pay back the tax, so you do have some leeway there.

Janna: Right, right. And also, if you end up actually paying back the amount you took out within those three years, you can avoid that tax altogether, right?

Dhara: Yes. That's true. That's definitely true.

Janna: So I don't know if everybody is aware, but that 10% penalty that you were talking about, that happens if you withdraw before, what, you're 59 and a half?

Dhara: Yes, exactly. 59 and a half.

Janna: So it's an early withdrawal. It's there to keep people from actually tapping their retirement savings. But in this case, obviously the CARES Act made it easier because lawmakers realized people are facing bad, bad times.

Fidelity study actually saw that the pandemic boosted millennial savings rates in quarter two, with IRA accounts more than year-over-year. (Source: Getty Creative)
Fidelity study actually saw that the pandemic boosted millennial savings rates in quarter two, with IRA accounts more than year-over-year. (Source: Getty Creative)

Dhara: Yeah. Another way this can help you too, is if you owed back a 401(k) loan this year too, you have an extra year to pay it back. So definitely some leeway there as well.

Janna: Oh, wow. I didn't know that. That's interesting.

Dhara: Yeah.

Janna: So, okay. So some people, like you said, about 10% are dipping into their retirement savings to help them through this time. But are there any people out there that are actually increasing their savings or are taking advantage of maybe they still have their job, but they're not spending as much because they can't go out as much?

Dhara: Yeah. What's so interesting about what we were just talking about, is the narrative has always been that the millennial generation, through the Great Recession, and then this could be their double punch here-

Janna: Right.

Dhara: ... but they're actually ... There's actually a lot of good stuff around happening this generation. The Fidelity study actually saw that the pandemic boosted millennial savings rates in quarter two, with IRA accounts more than year-over-year.

Like we had talked about, IRAs are pretax, but Roth IRAs, which are an amazing tool, as experts say, because if you've had a Roth IRA for five years, you can really withdraw without being penalized. So we saw Roth IRAs post-tax retirement accounts, they saw the largest jump, 36% year-over-year growth for millennials, and 50% increase in contributions. So I guess it's safe to say that millennials are really taking advantage of this time, just to refocus on their finances.

Janna: Thanks for tuning into this episode of Money, Honestly, by Cashay, brought to you by USAA. If you're currently serving, a veteran who served honorably, or an eligible family member, USAA has your back. They can help you manage your money and protect what's important to you. With roots grounded in the military, they understand what their members are made of and can offer financial products and tools that fit their unique needs. For those who sacrifice so much for our nation, USAA is here to serve you. To learn more, visit usaa.com. Membership eligibility, and product restrictions apply and are subject to change.

Janna: Right. And what about other workers in general? Did either Fidelity or Schwab or people you've talked to, do people increase actually how much they're putting into their 401(k) from each paycheck?

Dhara: Yeah. So what's interesting, so in Fidelity, across the board, 9% of investors actually increased their contribution rates. I wouldn't say it's a huge amount, but it's yeah. Besides millennials, overall, it seems that people are, there are people taking that effort there.

And this is interesting too. That there's people like us who we're not necessarily maybe on the front lines, but even those on the front lines of the pandemic, like those in the healthcare industry, 96% of workers also increased their contribution rate in Q2, 2020. So it was just interesting tidbit to note there.

Janna: That is interesting. What about people who are already retired? Like my parents, for example, already retired and watching all this fallout, how are they doing when it comes to their savings that they are depending on now?

Dhara: So it's almost twofold in a way, because in one way, this generation is actually, has been pretty good when it comes to having a home, not having mortgage payments. We saw, according to an Edward Jones study, 78% of retirees own homes, 60% of which have no mortgage payments whatsoever. So that's great.

About 96% of healthcare workers also increased their contribution rate in Q2, 2020, according to Fidelity. (Source: Getty Creative)
About 96% of healthcare workers also increased their contribution rate in Q2, 2020, according to Fidelity. (Source: Getty Creative)

But despite being in that scenario, we're seeing a lot of retirees now worry about their adult children during this time. Almost close to one in two are saying the pandemic has made them worry about their children even more. And believe it or not, so many, the majority of which, 71% of retirees are saying that they would jeopardize their remainder years, their financial future, for their children, if it means helping them out.

Janna: Oh, well, that's definitely ... I could see my parents feeling that way too, but I wouldn't want them to do that. But generally, when they're looking at their own finances, they're doing pretty well, versus maybe some, that's why they're worrying about their kids who might be losing their jobs or getting furloughed, for example.

Dhara: Yeah. Yeah, that's so true. And it's interesting that already 1/4 of parents with adult children, we're talking 24 million Americans, they've already provided some financial support during the pandemic. So I think it's just going to be a waiting game to see if that number increases for the rest of the year.

Janna: Since we're talking about retirees, a lot of retirees depend on Social Security, right? But you found that a lot of these layoffs and things that are happening right now in the job market, could actually impact Social Security in the future. Can you tell me a little bit more about that?

Dhara: Yes. So I mean, the concern that Social Security, the Old-Age & Survivor's Insurance Trust Fund is going to be depleted by 2035, that was the original finding there by the trustees. It's no new news that that should be a concern, but it's always placed on the back burner. So I was really curious, well, as we're seeing 55 million people and more at this time file for unemployment claims, less people are going to be paying into this system. I actually was able to learn about other factors from other experts, but this just alone, I'm just thinking, "Well, that means less dollars going to the system, and that means that that 2035 date may be pushed earlier."

Experts are saying, I talked to Peter Earle, he's an economist at The American Institute for Economic Research, he said that date could be as early as 2032. So that's a little ... In retirement, you always think about the three-legged stool, and pensions are a different, maybe a story for another time ... But one of the other pegs are really Social Security, so if that's in jeopardy, then people better start saving right now.

Janna: Right. So you might be getting less from Social Security than you may have thought, and so that would ... Especially if you're not that far off from retirement, that might change your calculus.

Yeah, how does one figure out how much you need to retire?

Dhara: You can actually ... So without going to super specifics, there is a worksheet you can actually access on the Social Security page. So there's resources there that you can check. You can also talk to a financial advisor, someone you trust, who's probably a fee-only fiduciary. So that would be helpful, as early as possible.

I think something that is interesting, that could be worth talking about, is there's actually more to the story right now during the pandemic, related to Social Security. One of Dean Baker, one of the economists I talked to, he said that it's also the fact that we're putting in ... With all the stimulus, the stimulus bill that was passed, the more dollars you're pumping out of the system, the less value the dollar will have. And then therefore, the value of the Social Security Fund as it is, it might weaken. Which means eventually people, the payouts they're going to get might be worth less.

Janna: Oh, okay. That's really interesting.

And the other new wrinkle that happened this past weekend, was President Trump signing an executive memorandum or order about deferring payroll taxes. So that's your Social Security taxes you pay and your employer pays. I talked to a few experts actually on this. And who knows if it's going to be carried out, A. B, who knows if it's going to be a deferral, meaning that you don't have to pay it now, but you have to pay it later. Or if it actually becomes a forgiven amount. But if it becomes a forgiven amount, there's another way that we're not paying into the system, as you're talking about, or as much.

The payroll tax raises about 945 billion per year for Social Security. (Source: Getty Creative)
The payroll tax raises about 945 billion per year for Social Security. (Source: Getty Creative)

Dhara:

Yeah. That's what President Trump's ... I think that's what he said his intentions are, but it's worth noting, the payroll tax raises about 945 billion per year for Social Security. We've seen both President Trump, and even Joe Biden, hint at they don't want to take away Social Security necessarily, but if we're taking away the payroll tax, we might have to ... I would just be curious what the next step solution is.

Janna:

Right. It doesn't make the whole funding Social Security that much better. It makes it worse. Right?

Dhara:

Exactly.

Janna: All right, so enough about Social Security, but I think that was a really interesting point.

But given everything that learned during the pandemic and watching the stats come in about retirement, what kind of advice would you give to people who are currently saving for retirement right now?

Dhara: I would say don't dip into your retirement savings unless it's completely, absolutely necessary. I think, I mean ... If I can ... One second. We already saw that ...

There was a recent Bankrate study, I think a few months back, but it was just basically pointing to the fact that so many Americans pre-pandemic couldn't even, didn't even have enough for like a $400 emergency. So I would say really put away money and start building your emergency fund. Have three to six months worth of expenses locked in. And to be quite frank, now that we're in a pandemic, it might even make sense to increase it to a year. So that's that.

I think in a time like this, it would be helpful to see if you can ... If you want to save for retirement and you're trying to stretch your dollars as far as you can, see if you can negotiate in the other places of your life, such as if you're paying rent, can you negotiate your rent lower with your landlord, so you can put more money towards your future.

Janna: That's good advice. And also a lot of people, if you're still employed and you're not spending as much because you're not going to movies and you're not going on big vacations, maybe that money also, you can just, let's stock it away.

Dhara: Yeah. You can increase ... I mean, yeah, it's August, you have October, November, I mean, you have September, October, November, December. You can contribute up to 9500 in your 401(k). If you're 50 and older, that's another $6500. If you have an IRA, another $6000. If you have a Roth IRA, another $6000. And an extra 1000 if you're 50 and older. So even if you think you're saving and you maybe are a little like, "Hey, what do I do next," well, you can always put more.

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

Janna: That's true. And also, if we ever get that second round of stimulus checks and you don't need to use it right away, there's another place to put it.

Dhara: Yeah. There you go. In terms of just the state of retirement and just the focus on that, from all the experts that I've talked to, it seems that while a solution for Social Security comes into more public awareness, while we wait for these things to happen, the best advice would be to look out for your own self and save.

Janna: Yeah, that's actually very good advice because you can't necessarily wait for someone to save you, and you can do whatever you can to put yourself in a better position.

So thank you, Dhara, for joining us today on Money, Honestly. And thanks for everyone listening. Head over to Apple Podcasts and leave us a five-star rating and review. We'll see you next week.

Janna: Thanks for listening to this episode of Money, Honestly, by Cashay, brought to you by USAA. If you're currently serving, a veteran who served honorably, or an eligible family member, they've got your back through every stage of life. To learn more, visit usaa.com.

Dhara is a reporter Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.

Read more information and tips in our Retirement section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook