How COVID-19 Has Affected Retirement Readiness

Published on June 2, 2022

Workplace shutdowns and layoffs; business closures; the Great Resignation; intense stock market volatility. The COVID-19 pandemic has had a powerful effect on Americans’ ability to save adequately for a comfortable retirement and put themselves in a positive retirement readiness zone. Add to that the recent world events that are contributing to high inflation and deeper market losses and it’s no wonder people are concerned about their ability to retire with enough money.

Financial concerns began at the start of the pandemic

As far back as two years ago when the pandemic hit, many taxpayers’ financial futures were already in jeopardy.

SHRM quoted results from an April 2020 survey by Betterment, noting that 52 percent of respondents said they’d need to access their long-term savings within a year, and 43 percent said it would take six months or longer to financially recover from the pandemic. A MoneyRates survey conducted that March found that 36.4 percent of Americans within 20 years of retirement expected the COVID-19 crisis to delay their retirement (and that they planned to work longer).

In 2022, we are seeing less unemployment but higher levels of uncertainty among many Americans. Retirement plans are also affected:

• During the pandemic, people took loans from their workplace retirement plans to cover living expenses.
• SHRM noted that many employers and their workers have stopped contributing to 401(k) plans.
• Bloomberg reports that 22% of people approaching retirement age said they’ll have enough money to maintain a comfortable standard of living, down from 26% a year ago, according to the 2022 Schroders US Retirement Survey.
• Additionally, 56 percent of Americans reported they expect to have under $500,000 saved by the time they retire—at a time when they estimate they will need $1.1 million to retire comfortably.

Diversifying your retirement portfolio with a self-directed IRA

As we know, 2022 has been a year of market downturn and inflation, two factors that eat away at retirement assets. This compounds concern that COVID-19 hindered individuals’ ability to work, earn, and contribute to one’s retirement plan.

Self-directed investors—those with self-directed IRAs and other self-directed retirement accounts—already know that one way to hedge against inflation is through portfolio diversification. And there’s little out there that gets more diverse than a self-directed IRA that allows for a broad array of alternative assets.

Including these alternative assets—such as real estate, precious metals, cryptocurrencies, notes/ loans, and private equity—in a retirement plan allow investors to build a more diverse retirement portfolio with investments they already know and understand. Including these in one’s self-directed retirement plan avoids stock market volatility since these nontraditional investments tend to not correlate with stock market performance. Also, account owners can take advantage more nimbly of investment opportunities that arise within these asset classes.

Beating the COVID retirement outlook blues

No one can predict what will happen in the coming months with the stock market, world affairs, or the rising prices of goods on a global scale. Nor do any of us know when supply chain issues will ease, which is another factor in price increases. But at Next Generation, we know that taxpayers who are still working and can contribute to a retirement plan can do better than watch their stock portfolios drop along with the market.

Perhaps you already have an IRA and are comfortable making your own investment decisions. You may even be investing in alternative assets outside of your existing retirement plan. If so, talk to us about opening a self-directed IRA. We are here to answer your questions about self-direction as a retirement strategy, and you can schedule a complimentary educational session with a knowledgeable member of our team.

Alternatively, you can contact us directly via email at NewAccounts@NextGenerationTrust.com or call (888) 857-8058 for more information. We’re all about retirement readiness and providing investor education about the many options and benefits of self-directed IRAs.