More Americans are Using Retirement Savings to Cover Expenses

Twenty-twenty has taken its toll on the average retirement savings, according to a new study by Kiplinger’s Personal Finance magazine and Personal Capital, an online financial advisor. More than half of Americans are dipping into their savings, with 60 percent using their IRAs and 401(k)s to get them through the difficulties they are facing from the coronavirus pandemic. 

 “The past year rocked the confidence of most Americans saving for retirement,” says Mark Solheim, editor of Kiplinger’s Personal Finance.

“With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.” There’s a lot to be learned from how Americans are handling their finances after the crush of the COVID pandemic. The recent survey explores trends regarding retirement savings and investments and offers much food for thought going forward. 

Kiplinger-Personal capital retirement survey results

The survey includes Americans between the ages of 40 and 74 who are not fully retired and have a minimum retirement savings of $50,000. Highlights from the study include:

  • Almost 60% withdrew from their IRA or 401(k) during the pandemic.
  • More than a quarter withdrew at least $75,000 from their retirement account.
  • More than half took out loans between $50,000 and $100,000.
  • 63% used these funds for basic living expenses. 
  • More than a third of Americans will retire later than they had initially planned pre-COVID.

Retirement and investing changes due to Covid-19

Findings are consistent with a similar survey by Financebuzz where respondents also said they had stopped contributing to retirement savings. Reports from Bankrate also show that 62% of those withdrawing from retirement savings are doing so due to income loss.

Bankrate’s Chief Financial Analyst Greg McBride explains, “In addition to the 1-in-4 working households that hadn’t been contributing to retirement savings before the pandemic, a further 18 percent are now contributing less toward retirement. The runaway culprit is loss of income, cited nearly twice as often as the next most common reason of keeping more cash-on-hand.”

About 66% of respondents currently hold a retirement savings plan through their workplace. While common, it’s yet another link to employment that is shaky in light of the current economy. Only half have stuck to their original pre-COVID retirement savings plans, with 47 percent reporting a change. 

So, what are these funds being used for? Kiplinger-Personal Capital’s study shows that Americans are using their would-be retirement savings for a number of everyday priorities, making the financial effects of COVID that much onerous 

  • Medical expenses — 41%
  • Home repairs — 32%
  • Auto repairs — 26%
  • Tuition — 23%
  • Family support — 21%

Financial activities breakdown by gender 

Respondents for this survey were equally split by gender, and there is a huge gap in financial behaviors between the sexes.

Financial behaviorMenWomen
Used a COVID relief program65%28%
Retirement account distribution49%14%
Borrowed from retirement account44%11%
Took more investment risks than needed38%9%
No changes to stock holdings 42%76%
Daily check for investment and retirement accounts35%11%
Plan to work longer in order to save more45%25%

Seventy-six percent of these respondents are also married, so most couples balance each other out. Additionally, nearly all respondents hold some form of employment, with 86 percent working either full-time or part-time or are self-employed.

Other options after dipping into retirement savings 

The survey also details the kinds of retirement savings accounts that Americans are using today:

Additionally, government support has helped. The CARES Act has provided Americans with critical COVID financial assistance, such as additional unemployment benefits and economic impact payments via stimulus checks.

What has also encouraged retirement withdrawals is a specific provision outlined in the CARES Act. This allows Americans to withdraw up to $100,000 from their retirement accounts without penalty, including 401(k)s and individual retirement accounts, which are generally subject to a 10% penalty.

With about 15 percent of Americans selling off parts of their portfolios, even investors are taking the pandemic as an opportunity to reevaluate and restructure their current and future holdings.

The survey also confirms what many already expected – the majority of Americans enjoy the experience of working from home. Those lifestyle changes in the future could be a huge help when rebuilding the savings snatched up by coronavirus.  “Last year presented many challenges,” said Jay Shah, President of Personal Capital. 

“The pandemic not only created a global health crisis, it impacted the financial outlooks and retirement plans of many. To support people today and beyond, we continue to invest in our free financial tools and publish educational content about a vast array of financial topics. We believe financial empowerment is one key that will help enable people and families to be more confident about their financial futures.”

Too long, didn’t read?

While retirement savings have been wounded by the year’s events, the majority of respondents still feel that they have enough money for a comfortable retirement. They may have to work longer to replace those COVID expenses, but they are confident in the social security program’s ability to deliver benefits when they do retire.

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Lena Borrelli – Contributing Writer Last Updated: January 10, 2021

Lena Borrelli is a Tampa-based freelance writer who has worked with leading industry titans, such as Morgan Stanley, Wells Fargo, and Simon Corporation. Her work has most recently been published on sites like TIME, ADT, Fiscal Tiger, Bankrate and Home Advisor, as well as many other websites and blogs around the world.

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  • Andrea PerezPersonal Finance EditorAndrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.