Fidelity Investments is out with their 2021 State of Retirement Planning Study. Given the impact of Covid-19 on many Americans, in terms of health, employment, etc. it isn’t surprising to read that pre-pandemic retirement plans may have been altered. What is surprising is the percentage of responders that indicated a negative impact. In fact, Fidelity is reporting that 82% of Americans said that their retirement plans have been impacted, with 55% indicating that retirement was likely pushed back by at least 2 years, and another 33% indicated that the delay may be 3-years or more. Ouch!
Importantly, 79% of the survey responders indicated that they had re-evaluated their priorities, as a result of the pandemic and many (36%) remain stressed about their ability to maintain a retirement nest egg: and they should be given the low level of US interest rates and significantly inflated multiples for equities that have been fueled by the short-term benefits from stimulus. That combination doesn’t bode well for future returns. Couple the investment concerns with the lack of longevity protection and professional management, and you have the basis for a lot of STRESS.
The demise of the traditional DB plan has created a lot of issues for Americans hoping to retire one day. Sure, some higher earning Americans have been able to stash away “significant” sums of money in a DC retirement account, but that certainly isn’t the norm for a majority of American workers. Furthermore, that balance is subject to great risk should markets experience similar results as those realized in 2000-2002 and 2007-2009 when 401(k)s became 201(k)s seemingly overnight. DC plans were originally contemplated as supplemental retirement vehicles. They should once again assume that role allowing for defined benefit plans to be the true retirement plan that it is.