The Pandemic Is Still Destroying Americans’ Retirement Savings: 2021 Analysis

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  Written by Michelle Delgado

The United States is facing a retirement crisis. 

In 2020, Congress introduced the SECURE Act, a bipartisan measure designed to rewrite regulations that impact Americans’ personal finances before and during retirement. 

Yet the law has already been deemed inadequate and is undergoing possible expansions, such as automatic enrollment into employer-sponsored retirement plans and increased caps on annual contributions. 

Meanwhile, the pandemic has exacerbated financial stress, prompting many Americans to withdraw from their retirement savings. The pandemic has also accelerated rates of retirement among boomers, with 3.2 million more retiring in the third quarter of 2020 compared to the same period in 2019 — possibly due to historic unemployment that forced early retirement for some.

To better understand how Americans are preparing (or failing to prepare) for retirement, we surveyed 1,000 workers about their personal finances, retirement savings, and expectations for the future. 

We found that Americans of all ages generally expect to retire around age 66, but 40% of boomers say they’ve put retirement plans on hold due to the pandemic. 

At the same time, around 2.7 million Americans, predominantly affluent and white, say they’re considering retiring early, thanks in part to stock market windfalls — further underscoring America’s significant wealth gap.

For most boomers, though, there’s little time to make up serious deficits in their retirement savings. And across all age groups, financial stress during the pandemic has forced Americans to both curb their retirement savings and deplete their stock investments.

The Pandemic Forced More Than One-Third of Americans to Dip Into Their Retirement Savings

Many Americans have less saved for retirement than they did at the start of the pandemic. 

Among respondents who had retirement savings at the start of the pandemic, more than one-third (35%) spent some of their retirement funds since March 2020. 

On average, Americans reported spending 44% of their retirement fund — nearly half the money that would otherwise have accrued interest in years to come. Boomers spent slightly more, reporting they spent 46% of their retirement savings.

To put a dollar value to this spending, respondents who spent their retirement fund reported median spending between $10,000 and $14,999. Nearly one in five respondents spent more than $25,000 from their retirement savings — though 11% spent $1,000 or less.

• Less than $1,000 = 11%
• $1,000 – $4,999 = 16%
• $5,000 – $9,999 = 18%
• $10,000 – $14,999 = 14%
• $15,000 – $19,999 = 14%
• $20,000 – $24,999 = 10%
• Greater than $25,000 = 18%

Though there are some differences between spending by millennials and boomers, both groups follow the same general pattern:

Though millennials and boomers were almost equally likely to spend more than $25,000 from their retirement savings, boomers were more likely to report spending less than $1,000.

Americans Are Saving Less for Retirement Due to the Pandemic

The pandemic has strained Americans’ finances, reducing the amount of money people can save. 

Just two-thirds of private industry workers (67%) have access to an employer-sponsored retirement plan, according to the most recent data from the Bureau of Labor Statistics. On average, companies that match employee contributions offer around 4.3%.

Experts recommend contributing 10-15% of your income to a retirement fund. Our respondents reported saving an average of 20% of their income prior to the pandemic, though this figure encompasses a wide range of savings rates from 0% to above 50%. 

During the pandemic, however, Americans have reduced their contributions to retirement funds by approximately 3%. Across all generations, working Americans are currently saving 17% of their salary for retirement on average.

We found saving patterns varied significantly across the different generations we surveyed, however:

• Millennials have reduced their retirement contributions by 1%
• Gen Xers have reduced their retirement contributions by 11%
• Boomers have reduced their retirement contributions by 5%

Still, respondents view these setbacks as temporary. The majority (56%) plan to update their retirement strategy after life returns to “normal,” including 65% who plan to boost their contributions to a retirement fund.

Across all generations, after the pandemic, Americans plan to:

• Increase retirement contributions (65%) 
• Contribute to other investments (34%)
• Dedicate a larger percentage to lower-risk investments (31%)
• Dedicate a larger percentage to higher-risk investments (28%)

Just 9% of respondents plan to further decrease their retirement contributions once the pandemic eases. 

Among Those With Investments, Nearly One-Third of Americans Cashed Out Some of Their Stocks — and Most Regret It

When the pandemic first struck, the stock market abruptly plunged as uncertainty swept the nation. In this initial panic, or in the subsequent months of financial strain, nearly one-third of Americans (30%) with investments took money out of the stock market.

But after the initial nosedive, stocks took another sudden turn as optimism about vaccines manifested in record-setting highs. Today, 60% of respondents who took money out of the stock market say they regret doing so.  

Broken down generationally, millennials had the greatest sense of regret, with 64% wishing they kept their stock investments in place. 58% of boomers also regretted their decision to cash out stocks. 

Among respondents who sold stocks, respondents took out an average of 43% of their stock market investments since the beginning of the pandemic. 

Across all generations, the main reason for pulling money out of the stock market was to cope with short-term expenses and obtain cash for necessary expenses (46%). Other reasons included:

• Preparing accessible cash in case of emergency (40%)
• Wanting to make safer investments (35%)
• Wanting to make riskier investments (35%)
• Needing money to cover a large purchase, such as real estate or a wedding (34%)
• Fear of volatility (30%)

There were some key generational differences between boomers and millennials who took money out of the stock market: Boomers were significantly more likely to need money for necessary expenses (51% versus 41%); prepare an emergency fund (43% versus 36%); and decide to make riskier investments (41% versus 34%).

Millennials were slightly more likely to sell stocks to cover a major purchase such as a house or wedding (37% versus 34%). 

Investments in the stock market both reflect and reinforce America’s substantial wealth gaps. According to Pew Research, 68% of upper-income Americans own stocks — roughly five times more than lower-income Americans (14%).

As Americans navigate the stock market’s ups and downs, 86% of respondents said they believe the U.S. is experiencing at least one type of economic bubble. Possible types of economic bubbles include: 

• Real estate (27%)
• Cryptocurrency (20%) 
• General (18%)
• Stock (16%)
• Credit (13%) 

This uncertainty may be driving additional anxiety about impending volatility.

Boomers Will Struggle to Meet Recommended Retirement Savings — but Millennials Plan to Save 113% More Than Them

We found that the vast majority of Americans (91%) have at least some money set aside for retirement. 

The real question is whether these savings will prove to be enough. On average, Americans have $250,813 in their retirement fund.

Boomers, however, are behind where experts recommend and may not have adequate time to catch up. 

On average, respondents expect to have about $672,825 when they retire — but boomers only plan to amass $423,337, which is less than the expert-recommended fund of approximately $465,000.

Worse, with only an average of $296,064 saved, boomers face the difficult challenge of making up a $127,273 shortfall on average before they hit their typical retirement savings goal. The youngest boomers will turn 55 this year, leaving little time to make up this substantial deficit. 

On the bright side, millennials and Gen Xers are on track to save more than older generations, possibly reflecting valid anxieties about inflated costs of living and the future. Gen Xers plan to save  $776,434 by the time they retire, while millennials plan to save $901,542 — 113% more than boomers’ planned savings. 

Although a large portion of respondents expect to maintain the same lifestyle (42%) when they retire, one-third of respondents (33%) say their lifestyle will become more expensive. Just 25% of respondents believe their lifestyle will worsen in retirement. 

In reality, the majority of retirees are unable to maintain their standard of living in retirement. A study by Boston College’s Center for Retirement Research found that 51% of American retirees currently risk being unable to maintain the same standard of living they enjoyed before retirement, up from 49% in 2019.

Though some frugality may help to stretch retirement savings further, it likely won’t make up for Americans’ substantial shortfalls in savings. 

Millennials are more optimistic about their lifestyle in retirement: 29% of boomers and 17% of millennials expect their standard of living to be lower in retirement, while 31% of boomers and 40% of millennials expect their lifestyle to improve in retirement.

More than half of respondents (57%) believe they’ll outlive their retirement funds. For boomers, who are 12% more likely than millennials to believe they’ll outlast their retirement savings, this may reveal a misunderstanding of the cost of retirement. 

According to research by Fidelity, 37% adults who have yet to retire estimate that healthcare costs would amount to $50,000 to $100,000 throughout retirement. Yet Fidelity found that the average couple who retires at 65 will spend closer to $295,000 on healthcare alone — a number likely to increase even more with inflation.

This confusion over the true costs of retirement also manifests in how respondents ranked their retirement savings compared to their peers. Nearly two-thirds of respondents (63%) assume they’re saving as much as their peers (22%) or more than their peers (41%). 

There’s a Major Generational Divide in Expected Sources of Retirement Income

America’s different generations of workers have different expectations about where their retirement income will come from. 

Overall, workers think their biggest source of retirement income will be:

• Retirement account investments (Roth IRA, 401(k)) (36%)
• Social security (19%)
• Pension (11%)
• Stocks and other investments (8%)
• Part-time wages (8%)
• Real estate (5%)
• Family support (4%)
• Non-SSI government assistance (4%)

But compared to boomers, millennials expect to rely more on their own savings and investments than Social Security. In fact, boomers are 61% more likely to cite Social Security as their biggest source of retirement income than millennials (32% of Boomers versus 10% of millennials).  

This makes sense, given that Social Security Administration projects it will only be able to pay in full through 2037, before the oldest millennials quickly reach retirement. 

By contrast, millennials are more likely to view retirement account investments such as a Roth IRA or 401(k) as their biggest source of retirement income (45% of millennials versus 24% of boomers). 

Boomers may also overestimate the income they can earn from part-time work. 10% of boomers believe part-time wages will be their biggest source of income in retirement, compared to just 4% of millennials. 

Research suggests Americans are “overly optimistic” about how much they can realistically earn from part-time work. Although 68% believe part-time wages will provide some financial support during retirement, just 23% of current retirees actually receive income from a part-time job, according to the 2021 Employee Benefit Research Institute Retirement Confidence Survey.

Finally, 25% of Americans overall believe they’ll have financial help from family members during retirement, but boomers are 13% more likely to expect younger generations to help finance their retirement compared to millennials. 

Final Thoughts

As more members of the United States’ aging population transition into retirement, the nation faces the risk that its elderly population will face financial hardship in their later years — an issue that was exacerbated by the pandemic’s widespread financial strain.

In particular, boomers who plan to retire within the next decade face the steep challenge of making up for severe shortfalls in their retirement funds.

As younger generations save for retirement, many are steeling themselves for a future with little financial assistance from the government or other sources. 

Methodology

We surveyed a total of 1,000 non-retired Americans in a survey on April 29, 2021.

Each respondent answered up to 20 questions about the state of their retirement savings, their experience during the pandemic, and their financial expectations in retirement.

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