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Sometimes even the good news stories in this era of COVID-19 don't turn out to be all that good, and so it is with the story about retirement finance holding up so well during the pandemic recession.
In fact, it's maddening.
It is true that retirement finance and expected incomes in retirement came through the pandemic recession largely unscathed, if you look at the system as a whole rather than those cases that don't fit the "average" narrative, the misfortunes like a layoff or health crisis.
Not only did retirement savings balances hold up, this time workers close to retirement didn't get hurt more than younger workers. Even the Social Security system's well-understood problems didn't really get any worse.
All of this was a little surprising even to the experts at the Center for Retirement Research at Boston College, out with a new report titled "COVID-19 Is Not a Retirement Story." That's because the effects of recessions usually have a way of falling heavily on savers and workers approaching the end of their working lives.
There was apparently a joke going around during the Great Recession of 2007 to 2009, about how that downturn turned a 401(k) retirement account into a 201(k) account.
That joke doesn't seem that funny. The average 401(k) retirement account in the last half of 2008 lost at least a quarter of its value for workers who had been on the job and saving at least 20 years. While balances recovered as the stock market eventually did, those 55 to 59 years old when the trouble hit could expect lower incomes in retirement.
The COVID-19 recession that began roughly a year ago tossed so many people out of work that comparing what was happening to the terrible Great Recession didn't seem to adequately fit the moment, so instead we saw references to the Great Depression of the 1930s.
But as traumatic as the pandemic has been, the damage has been slight to retirement finance. "Not very much" of a change at all is how Alicia H. Munnell and Anqi Chen of Boston College's retirement research center just put it.
Some of this can be explained by how the stock market came roaring back after collapsing last February and March from COVID-19 fears. The stock market ended 2020 up for the year, led by the better than 40% gain in the booming Nasdaq composite index.
The snapback happened so fast that anxious savers may not have had time to move their assets out of stock funds, which might explain why there's not much evidence that 401(k) and individual retirement account balances shifted out of stocks.
Workers didn't rush to take out money out of their accounts, either. And apparently few employers dropped their matches to employees' retirement plans.
Yet the biggest factor of all that turned the pandemic recession into a non-story for retirement finance, Munnell and Chen concluded, is that the people who were badly hurt in the downturn were low-wage workers who didn't have any retirement savings anyway.
Only about half of households with people approaching retirement age have any retirement savings, and not even close to half of workers at the lowest rung of the income ladder even have access to a 401(k)-type retirement plan.
Job losses among lower-wage service workers explains one of the weirdest aspects of a very odd year for the economy, as average wages actually started to go up even with week after week of appallingly high initial claims for unemployment benefits.
What happened was that so many low-wage workers were furloughed or laid off, knocked out of the labor market and thus out of the calculation of averages, that wages looked to be rising.
As the Boston College researchers looked at the data, they focused on the pain experienced by the big portion of the workforce with just a high school diploma or less, their proxy for lower-paid work. "Since this group is much less likely to have access to a 401(k) plan, it is not surprising that 401(k) balances have been relatively unaffected," they added.
Not that everybody with a 401(k) or individual retirement account is well set up for retirement. The typical American household with someone approaching retirement and with a 401(k) account saw their account balances grow from $135,000 in 2016 to about $144,000 just before the pandemic.
If that seems like a lot of money, it's enough to provide a couple about $570 per month in retirement income, according to the authors' calculations.
As it stands right now the people with a 401(k) or an IRA account likely to have enough money to make a big difference on post-retirement lifestyles are workers in households ranked in the top 40% by income. For everyone else with at least something set aside, it's better to have the money than not have it, but it's not enough to make a big difference.
As the vaccinations to ward off COVID-19 continue and spring starts to feel close even here in frigid Minnesota, talk has turned to when things really get back to normal.
Normal seems like a less than perfect concept when discussing our economic life. But if normal is what things were before the pandemic, here's what that means to Americans hoping for a secure retirement:
• Millions of Americans are beneficiaries of public employee pension plans that aren't fully funded.
• Tens of millions more own one or more of a hodgepodge of savings accounts, 401(k)s, 403(b)s or IRAs, that don't have enough money in them to maintain their standard of living after they quit their paid jobs.
• Tens of millions more have next to nothing saved and will have to depend on family support, Social Security and public assistance to live once they are done working.
We can do so much better than back to normal.
lee.schafer@startribune.com 612-673-4302
