Impact of the COVID-19 Pandemic on Retirement Income Adequacy: Evidence From EBRI’s Retirement Security Projection Model®

Abstract

The research in this paper explores the aggregate potential impact of the 2020 market crisis as well as assumptions with respect to future employee and employer behavior in response to the current situation and potential decreases in defined contribution eligibility arising from increased unemployment. The combined impact of all intermediate assumptions (including the investment losses already experienced in the first quarter of 2020) certainly appears to be manageable: The $3.68 trillion aggregate deficit for all U.S. households ages 35–64 as of January 1, 2020, only increased 4.5 percent or $166.21 billion. Even the combination of pessimistic assumptions in this analysis only increased the aggregate retirement deficits by 11.2 percent or $412.77 billion. Of course, the crisis could result in unexpectedly worse outcomes — market losses could be even greater, plan terminations more common, etc. Further, this analysis is not meant to minimize the potential impact of the current situation on specific individuals who are most affected. A future EBRI Issue Brief will focus on the latter. Another paper will analyze the impact of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on retirement income adequacy, factoring in the potential ability of affected workers to take much bigger loans and withdrawals than they could even during the 2007–2009 financial crisis.