December 14, 2021

Is Americans’ Savings Buffer Wearing Thin?

COVID has worn Americans down emotionally. But it might be eating away at their financial reserves too – at least for some people.

As the pandemic has dragged on, many people said in newly released surveys that they are more anxious about their finances and feel that their savings are wearing thin.

We won’t get a true picture of the pandemic’s impact until it is far away in the rear-view mirror. For one thing, Congress’ intent when it doled out historic amounts of cash assistance to workers was to carry them through the COVID lockdowns and resulting unemployment. And it worked.

After federal relief checks were deposited into bank accounts, the saving rate shot up to about 34 percent in April 2020 and to almost 27 percent in March 2021 – the highest levels this country has seen in decades. The rate has floated down to single digits as people have spent the extra money but remains relatively high.

Recent job gains and wage increases should also bolster balance sheets. Businesses added 626,000 more jobs in June through September than the U.S. Department of Labor had originally estimated, and October was a blockbuster month, with 531,000 new jobs created. In the November jobs report, unemployment hit a pre-pandemic low of 4.2 percent.

But these signs of progress are mixed in with feelings of unease. One thing is clear from surveys of workers by T. Rowe Price, said Joshua Dietch, vice president: The challenges that existed before COVID “didn’t get any lighter as a result of the pandemic.”

NPR also fielded a financial survey in August and September of this year. More than a third of U.S. households said they are having “serious financial problems.” And the workers who have suffered the most during the economic downturn last year – people of color – are in the worst shape: more than half of Black, Hispanic, and Native American households said their financial problems were serious.

A deterioration in savings could be behind that feeling of financial insecurity. Nearly 40 percent of households in NPR’s survey with the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health said they have no “savings to fall back on” – that is double the share who reported having no savings prior to COVID. The share of Blacks, Hispanics, and Native Americans who lack savings also doubled, though to much higher levels of 63 percent, 56 percent, and 55 percent, respectively. …Learn More

September 26, 2019

Half of Retirees Afraid to Use Savings

For most retirees, figuring out how much money to withdraw from savings every year is a difficult-to-impossible math problem. But the issue goes much deeper: fears about what the future might bring make this decision overwhelming.

Extreme caution is a popular solution. A 2009 study estimated that by the time middle-income retirees are in their 80s, they still had not touched about three-fourths of their savings, and 2016 research found that retirees with substantial assets are the most reluctant spenders. Vanguard recently reported that retirees with very modest savings turn around and reinvest a third of the money they’re required to withdraw under IRS rules after age 70½.

People saved all of their lives to make sure they will enjoy retirement. So why are they so reluctant to spend the money for the purpose it was intended?

A 2018 study in the Journal of Personal Finance surveyed retirees to get a sense of the psychology behind their caution.

Half of the survey respondents agreed with this statement:  “The thought of my retirement portfolio balance going down over time brings me discomfort, even if the decline in value is a result of me spending money on my retirement goals.”

And the people who agreed with this statement said they feel like they are not well prepared financially to retire – and this had nothing to do with how prepared they actually are. …Learn More