COVID-19 Mitigation Fallout: Retirement Savers and The Challenging Road Ahead

COVID-19 Mitigation Fallout: Retirement Savers and The Challenging Road Ahead
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The good news is it appears that COVID-19 is transitioning from being a pandemic “emergency,” and on the way to becoming “as endemic as flu.”

What that means is this coronavirus is going to circulate seasonally, much like the other four human coronaviruses do, and like seasonal influenza does.

But the bad news is: as the emergency subsides, massive economic fallout tied to the COVID-19 pandemic efforts seems to be taking shape. The economic consequences of the pandemic may become just as endemic as the COVID-19 virus itself.

It looks like a rocky road ahead for retirement savers…

“Americans’ Savings Drop to the Lowest Point in Years”

According to an article on GOBankingRates, things are already quite troubling for retirement savers. More than a third don’t even have a full paycheck in savings:

40% of Americans have less than $300 in savings. This is a drop compared to the pre-pandemic figure of $400 in savings used by the Federal Reserve as a gauge for measuring households’ financial well-being.

The article continued, revealing an even more dire picture: “Breaking down the GOBankingRates survey further, 50% of Americans have less than $600 in savings and 57.4% have less than $1000 in savings.” That’s a far cry from expert recommendations for an emergency fund sufficient for 3-6 months’ worth of expenses.

This data shines a light on the challenge of saving anything at all, let alone for retirement, in our “post-pandemic” economy. But it gets worse…

Online real estate referral service Clever conducted a survey of 1,500 U.S. retirement savers that produced a shocking result:

Nearly 80% of respondents have less than $150,000 saved for retirement.

The average amount in retirement savings according to the same survey was only $177,787, which means the other 20% of respondents didn’t have much more. No matter how you look at it, retiring on that paltry sum isn’t likely to get any retiree very far into their “golden years.”

Over half of the survey respondents (56%) said they waited too long to start saving. Adding injury to insult, almost two-thirds said they retired earlier than they wanted to due to health issues.

And there’s one more very important consideration: your money isn’t worth as much as you think it is. Inflation might be the final factor that condemns millions of Americans to poverty.

Planning for Rising Inflation Could Prove to be a Bigger Challenge

Not saving enough to retire comfortably on is one thing. But not accounting for rising inflation is another thing entirely.

According to one model constructed by LIMRA, a 1% inflation rate could swallow up $34,406 of retirees’ Social Security benefits. If the inflation rate were to increase to 3%, the shortfall would total more than $117,000.

Right now, overall inflation is officially at 1.7%, and rising. (Wolf Richter makes some pretty compelling arguments against the official CPI calculation.)

And even if you managed to save $500,000 to retire on, according to Motley Fool, if inflation rises to 3% (which is about the 100-year average), in 30 years $505,365 of retirement savings will be worth roughly what $208,204 is right now. (That means a purchase that costs $1,000 today would cost about $2,122 in three decades). The takeaway? If you’re looking 30 years down the road, you need to save twice as much as you’ll need for retirement. And that’s at “average” inflation!

(Keep in mind that healthcare spending for the elderly is about three times that of a working adult.)

Considering this, it’s a good idea to make your retirement as “inflation resistant” as you possibly can.

Don’t Let COVID Fallout Destroy Your Savings

While it seems like things don’t look easy for retirement savers, you may still have options that could help you ease into your “golden years.”

Save as much as you possibly can, diversify your assets as you see fit, and don’t forget to fortify your retirement with the “gold standard” of inflation-resistant assets: precious metals.

Physical assets including gold and silver have proven to be inflation-resistant in the past, and tend to preserve purchasing power even when stock markets tumble. Better yet, when you own physical precious metals, there’s no counterparty risk, no default risk and no worries about accounting fraud. Sometimes it’s a comfort to know your future, and your savings, are as “good as gold.”

2021, coronavirus, covid-19, inflation, retirement