How the Covid-19 pandemic has disrupted millions of retirement plans

More baby boomers retired last year, while remote work helped some older employees to stay in their jobs longer

Early exits from the workforce can heighten the risk of long-term financial insecurity. Getty Images

Pandemic-related job losses forced many older people out of the workplace in the past year, perhaps permanently. But the Covid-19 crisis also seems to have delayed some retirements.

Remote work eliminated commutes and often allowed more flexible schedules with fewer interruptions. At the same time, the pandemic restricted many traditional retirement activities, including travel and visits with family. While some employed older workers look forward to retiring when restrictions ease, others say teleworking has made staying on the job more tenable.

Tax accountant Larry Harris of Asheville, North Carolina, found a lot to like about working from home, including more flexibility and less time in his car.

“I’d never worked from home except in a snowstorm. I found that I loved it,” Mr Harris, 67, said. “I think it will keep me working longer.”

Economists talk about a K-shaped recovery, where a portion of the nation’s industries and population bounce back quickly from recession, while others stagnate or continue to sink. Something similar may be happening with baby boomer retirements, as better-off workers gain more options while those with fewer choices lose ground.

The pace of retirements among baby boomers, those born from 1946 to 1964, accelerated during the pandemic, a Pew Research Centre analysis of US monthly labour force data found.

The number of boomers who reported that they were out of the labour force due to retirement grew 3.2 million in the third quarter of 2020 compared with the previous year. Before the pandemic, the number of retired boomers had been growing an average of 2 million each year since 2011, when the first boomer turned 65.

Some people retired to avoid Covid-19 exposure, while others may have been nudged to “seize the day” by the pandemic’s reminder of our mortality. But massive job losses may have forced many into early retirement, economists and financial planners say.

One of certified financial planner Neal Zutphen’s clients, a woman in her late 50s, lost a well-paying job in the hospitality industry. Most people who lose a full-time job in their 50s never recover financially, according to research by non-profit newsroom ProPublica and the Urban Institute, a non-profit research organisation.

“It’s difficult to find a new position of similar calibre,” says Mr Zutphen. “She hopes to work part-time at something.”

Pandemic hit older workers harder

Older workers lost jobs faster and returned to work slower last year than mid-career workers, according to a study by The New School’s Schwartz Centre for Economic Policy Analysis that tracked unemployment from April through to September last year. The study found that for the first time since 1973, workers 55 and older faced persistently higher unemployment rates than workers aged 35 to 54.

Certain older workers – women and those without college degrees – were even more likely to lose their jobs. And these workers tend to have less saved, so they are also more exposed to retirement risks such as downward mobility and poverty, the study said.

A small delay can have a big impact

Employees don’t always get to decide when to retire, but delaying it, when possible, can help shore up finances. Early exits from the workforce can heighten the risk of long-term financial insecurity. Retirees may not have saved enough, and they might get lower payments if they start pensions earlier than planned.

Working an extra year or two allows people to save more for retirement and take advantage of higher “catch-up” limits on health savings accounts, certified financial planner Nadine Burns of Michigan said.