A new research brief from the Center for Retirement Research at Boston College shows how the coronavirus-induced economic crisis has inflicted widespread damage on workers’ ability to prepare for retirement.
According to the study, the amount of working-age households that will not be able to afford their present-day standard of living in retirement has increased from 50 to 55 percent due to the economic downturn. The researchers also discovered that 30 percent of all workers in the United States could be impacted by layoffs because of the recession.
This high number of layoffs has the potential to create a vicious cycle for workers’ retirement security. As layoffs lead to a loss of earning power, workers then will have far fewer financial resources to prepare for retirement, leading to a decline in available savings to retire securely. Older workers are particularly vulnerable to this effect, for if they lose their jobs now, they may earn less money at the height of their careers before they retire as they have less time to recover the lost income.
The researchers also found that low-wage workers’ retirement security will be disproportionately impacted by the current economic downturn because of two main factors. First, one major difference between this recession and the Great Recession of 2008 is that the current recession has more widespread unemployment. Second, some of the main economic indicators that were negatively impacted in 2008 were the values of housing and financial assets (which mostly affected higher-income earners).
In the current recession, however, low-wage workers have experienced a higher increase in the retirement savings gap than middle and high-wage workers because their ability to save for retirement almost entirely depends on their employment. Saving for a secure retirement that maintains one’s standard of living requires a worker to be able to have access to income that allows them to save. With low-wage workers disproportionately impacted by job losses, they lose that ability to save what they need for the future, widening the retirement savings gap.
One action policymakers can take to ensure that public employees retire with security is to protect their defined-benefit pensions. They’re the best way to guarantee public employees can retire with the security and dignity they deserve after serving the public during this crisis.