Retirees will suffer if the economic fallout from COVID-19 is anything like the 2007-2008 financial crisis.
The COVID-19 pandemic could jeopardize financial security for the next generation of retirees, writes Richard W. Johnson, director of the Program on Retirement Policy at the Urban Institute.
Johnson’s recent contribution to the Urban Wire blog compares the economic fallout from COVID-19 with the impact of the 2007–2008 financial crisis and Great Recession that followed. That comparison, he writes, “suggests the current crisis could wipe out existing retirement savings, hinder additional savings, and threaten public and private retirement systems.”
Johnson identifies 7 ways COVID-19 could undermine retirement security:
- Trillions of dollars of retirement savings could disappear.
- Employee contributions to 401(k) plans could shrivel.
- Employers might cut 401(k)-matching contributions.
- Working-age people may dip into retirement savings without paying it back.
- Defined-benefit pension plans may be at risk.
- If workers retire early, their monthly Social Security payments will be cut permanently.
- Social Security’s financial outlook could deteriorate.
“Most younger workers can recoup their lost retirement savings before they stop working by saving more each year and extending their careers,” writes Johnson. “The retirement security threat is more serious for older workers, who don’t have much time to rebuild their nest egg.”
Johnson suggests that policy makers can help improve the retirement picture by:
- Shoring up Social Security’s finances.
- Creating a meaningful minimum benefit in Social Security.
- Improving Supplemental Security Income for low-income retirees.
- Providing refundable tax credits for low-income older adults.
Policy makers can also help retirement income go further by improving medical and long-term care. Johnson recommends that policy makers:
- Create a unified Medicare deductible.
- Cap out-of-pocket Medicare expenses.
- Facilitate private long-term care insurance coverage.
- Create public programs to finance long-term care.