Research shows unexpected effects on retirement from pandemic

Emerging research suggests that predictions about the coronavirus pandemic's impact on retirement haven't been as uniformly frightening as feared or that conventional wisdom would have forecast.

To be sure, the pandemic extracted a large toll on the health and finances of many Americans, and research continues on the longer-term impact of the pandemic. The recent results can provide greater insight into the differing behavior of participants and retirees because one pandemic doesn't affect everyone equally.

The research and surveys from multiple sources show resilience among participants in their retirement timing and Social Security claiming, as well as public pension plans' resilience in maintaining a financial foundation, especially for government employees who don't receive Social Security. Government aid and a quickly recovering stock market meant that the pandemic hasn't had as big an overall affect on savings and retirement than did the economic collapse in 2008-2009.

When the coronavirus crushed the economy in early 2020, "the natural inclination was to draw similarities to how older workers responded in the Great Recession," said an October research report by the Center for Retirement Research at Boston College.

During the Great Recession, "despite a desire to work longer to replenish lost savings, the lack of available jobs forced many to claim Social Security benefits as soon as they were eligible — at 62," the report said.

"The COVID experience turned out to be very different than the Great Recession" thanks to the stock market's recovery, and "unprecedented" unemployment benefits "made looking for a job much more attractive than claiming Social Security benefits," the report said.

Gains in the stock market and housing market "allowed some advantaged groups to retire early," the report said. However, the economic recovery and the unemployment insurance aid "enabled many lower paid workers to stay in the labor market, delay claiming, and preserve their Social Security."

Overall, these "competing effects more than canceled each other out and led to a slight decline in early claiming and more secure retirements," said the report by Alicia H. Munnell, director of the Center for Retirement Research; Anqi Chen, assistant director of savings research at the center; and Siyan Liu, a research economist at the center.

The role of the social safety net in helping people ages 50 to 74 cope with COVID-19's economic impact was illustrated in a July report by the Pension Research Council of the Wharton School at the University of Pennsylvania, Philadelphia.

Unemployment insurance and the supplemental nutrition assistance program provided "significant support," especially for those 62 and older — "more strongly during the pandemic than during the Great Recession," the report said.

"Even with programs like Social Security and SSI (Supplemental Security Income), low income individuals after retirement are eligible for SNAP (supplemental nutrition assistance program) benefits, and many apply during recessions," said the report written by Robert A. Moffitt, a professor of economics at Johns Hopkins University, Baltimore, and James P. Ziliak, a professor of microeconomics at the University of Kentucky, Lexington.

Retirement timing was "remarkably stable during a period of upheaval in the labor market overall" in 2020, said a Sept. 19 analysis prepared by Daniel Thompson, a survey statistician in the Census Bureau's Program Participation and Income Transfers Branch.

When asked how the pandemic affected their retirement timing, 2.9% of people ages 55 to 70 who were employed in January 2020 said they retired early or planned to retire early due to COVID-19, the Census Bureau report said. Another 2.3% said they delayed retirement or planned to delay retirement.

The greatest percentage of those retiring early or planning to retire early was the 62-65 age group at 4.6%, the report said. The lowest percentage was the 55-61 group at 2.2%. The early retirement rate for the 66-70 group was 3.5%.

"COVID was a non-event for retirement expectations," said David Blanchett, head of retirement research at PGIM DC solutions, a unit of Prudential Financial Inc., Newark, N.J., during a Sept. 15 webinar sponsored by the Employee Benefit Research Institute, Washington. Based on PGIM data, Mr. Blanchett concluded that "there was relatively little movement in retirement age expectations during COVID, especially for older participants who are actually near retirement."

A study by EBRI detected optimism among older Americans' retirement expectations.

"Elderly American adults did not adjust their retirement expectations significantly in 2020, including planned retirement age and Social Security benefit claiming age, despite many respondents indicating that COVID-19 had impacted their work and financial situations," said the EBRI report published in August by Zhikun Liu, a senior research associate.

"Although there is a natural upward trend for elderly American adults to expect a later and later retirement age, this natural trend of delaying retirement has no statistically significant relationship with the COVID-19 pandemic," Mr. Liu wrote.

Early research also shows that public pension plans coped with pandemic-generated adversity.

"At the outset of the COVID-19 pandemic, many observers feared that the resulting recession would undermine workers' employer-sponsored retirement plans," especially those 5 million state and local government employees who aren't covered by Social Security, said a January report by the Center for Retirement Research.

"For this group, a prolonged recession, with poor investment returns and government revenue shortfalls, would have eroded the finances of their defined benefit plans — their only source of retirement income," the report said.

However, those fears weren't realized. "The immediate impact of COVID on public plans — both covered and noncovered — has been minimal," said the research by Jean-Pierre Aubry, the center's associate director of state and local research, and Kevin Wandrei, the center's assistant director of state and local research.

"Looking forward, structural headwinds such as negative cash flows and lower-than-expected investment returns pose little risk to the ability of noncovered plans to pay future promised benefits," the authors concluded.

Other research indicates that the story of COVID-19's impact on retirement is still being written.

Referring to data that show "unanticipated retirements" among people 55 and older in 2020 and the first half of 2021 vs. 2019, Vanguard Group researchers wonder if the so-called Great Retirement should be called the Great Sabbatical.

"The Great Retirement raises questions about the retirement readiness of those who have put in their papers sooner than expected," said the June report in which Vanguard used data from the Federal Reserve Bank of Atlanta.

"Retirement is expensive; early retirement is more expensive," said the report by Andrew S. Clarke, principal and senior investment strategist in Vanguard's investment strategy group; Fu Tan, investment research analyst in the group; and Adam J. Schickling, a Vanguard economist.

"Higher income workers who left the workforce during the pandemic need significant resources to finance their departure," the authors concluded.

"In the next few years, less wealthy pandemic retirees may need to return to the workforce."