The effects of the COVID-19 coronavirus pandemic on unemployment in America have led to most recent estimates placing the national unemployment rate at 11.1% as of June 2020, up from 4% one year prior according to the Bureau of Labor Statistics. Unemployment that has been driven by the pandemic’s effect on the economy is deepening the American retirement crisis, which will only increase in severity the longer that unemployment at this scale continues.
This is according to a research brief from the Boston College Center for Retirement Research, authored by researchers Alicia H. Munnell, Anqi Chen and Wenliang Hou.
“This crisis will affect retirement security in a very different way than the Great Recession because the destruction is occurring more through widespread unemployment and less through a collapse in the value of financial assets and housing,” the researchers say.
To measure the impact of unemployment as driven by the pandemic on the prospect of American retirement, the researchers employ the National Retirement Risk Index (NRRI) which measures the share of working-age households which are at risk of losing the ability to maintain their pre-retirement standard of living into their post-working lives.
Incorporating unemployment figures into the NRRI worsens the standing of households and opens up more of them to risk, according to the researchers.
“Widespread unemployment would increase the NRRI from 50.2% to 54.9% of all working-age households, resulting in an additional 4.7% of households at risk in retirement,” the researchers say. “Of course, the results for the 30% of households that experience the job loss are much more dramatic. The NRRI for this group increases from 54.4% to 75.4%, a 21-percentage-point jump.”
On its face, directly comparing the NRRI impact in 2020 to the impact observed in the Great Recession actually shows a degree of improvement. However, the overall outlook becomes dimmer when acknowledging other external elements, including housing and other asset prices. The stock market also remains very volatile even after recovering most of its early-year losses, and it remains possible that homeowners under financial pressure may sell their homes in order to bring in more cash.
“Ensuring retirement security for an aging population was one of the most compelling challenges facing the nation before the onslaught of COVID-19,” the researchers write. “The unemployment associated with the pandemic has made the situation worse across the board. The NRRI has most likely increased from 50% to 55%, and changes in asset prices and further declines in the interest rate would only make the increase larger. Finally, the NRRI does not fully capture the harm done to a population with so many households already at risk, as the pandemic has made the savings gap larger.”
Read the research brief at the Center for Retirement Research.