Publisher's Perspective

A recent report from the TransAmerica Center for Retirement Studies found that a third of workers have borrowed from their retirement savings accounts due to the pandemic or expect to do so.

The Coronavirus pandemic has not cost many federal employees their jobs, in contrast to the what it’s done to a great many in the private sector. If anything, there’s been a growth in need for federal employees, especially in health care fields, and that likely won’t change anytime soon.

But that doesn’t mean that older federal employees and retirees are escaping the financial and lifestyle impacts.

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That first was felt in the plunge in the financial markets last spring that wiped tens of billions of dollars of assets from Thrift Savings Plan accounts. The markets recovered, but investors well remember the feeling of watching their retirement savings drop.

A Congressional Research Service report notes that impact—and warns that the value of investments could fall again—but also looks more broadly at other potential effects.

One relates loss of employment, or simply a reduction in earnings, by a spouse working in the private sector. The report noted that over the first nine months of 2020, older workers experienced relatively larger job losses than other age groups.

While there has been some recovery since then, unemployment rates have remained higher than those for other age groups, which “may indicate a reluctance of employers to rehire from the oldest group, a reluctance of those workers to return to those jobs, or both.”

The jobs situation could cause families to begin claiming Social Security benefits earlier than they had planned, it said. That would come at a cost since those benefits are reduced if they begin before full retirement age, currently 66 and two months. Further, in some cases a person’s base benefit would be lower than what it would have been, had they continued earning at their prior rates for more years.

Some also may be forced to draw on their retirement savings; a separate recent report from the TransAmerica Center for Retirement Studies found that a third of workers have borrowed from their retirement savings accounts due to the pandemic or expect to do so.

That is what is called “leakage,” which is especially difficult to recover from at older ages, when the period for continued earnings is shorter and the tolerance for investment risk that can bring higher returns is lower.

“On the other hand, some older workers might choose to work more and retire later than planned” to make up benefit losses, the CRS said, as well as to give themselves more time to build retirement savings.

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Another potential impact, it pointed out, is “additional economic burden of supporting younger family members . . .  adult children with financial hardship due to unemployment or business closure might seek financial support from parents.”

It noted that during the rise in unemployment in the “Great Recession” a decade ago, “spending by older adults increased because of their children moving in with them or increased financial assistance to adult children who experienced hardship.”

It said that that pattern has repeated. During the first two months of the pandemic alone, some 2.2 million people between ages 18 and 25 moved in with a parent or grandparent for reasons—in some cases due to school closures but in others due to loss of income.

A federal job may be a good place to ride out a pandemic, but it doesn’t make you immune.

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