A Market Report
As an increasing number of households are struggling to make ends meet amid a global pandemic, more Americans have found themselves raiding their retirement savings in this coronavirus induced Recession.
A large share of consumers have also pulled money out of savings, around 30 % of retirement plan participants have tapped into their retirement accounts and the number are only set to increase according to recent survey by Magnify Money. Another national poll, which was conducted from November 4-10, 2020, also found that the amounts people withdrew or borrowed were significant. Thirty-two percent (32%) of respondents said they withdrew $75,000 or more from a retirement account, while 58% of those who took loans borrowed between $50,000 and $100,000. Additionally, more than a third (35%) said they now plan to work longer due to the financial impact the pandemic has had on their plans for retirement. View detailed survey findings here.
Mark Solheim, Editor of Kiplinger said “The past year rocked the confidence of most Americans saving for retirement,” said Mark Solheim, Editor of Kiplinger Personal Finance. “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come”.
“Last year presented many challenges,” said Jay Shah, President of Personal Capital. “The pandemic not only created a global health crisis, it impacted the financial outlooks and retirement plans of many. To support people today and beyond, we continue to invest in our free financial tools and publish educational content about a vast array of financial topics. We believe financial empowerment is one key that will help enable people and families to be more confident about their financial futures.
In addition to covering everyday living expenses, forty-one percent (41%) of those polled said they used their distribution, or loan, to pay medical expenses, while:
- 32% said the money was used for home repairs,
- 26% used the money for auto repairs,
- 23% paid tuition, and
- 21% helped family members
A provision in the CARES Act allowed people under the age of 59½ affected by the coronavirus to take a distribution of up to $100,000 from an IRA, 401(k), or similar account without penalty. It also permitted loans of up to $100,000.
Two track economy
The bottom fifth of earners (those making less than $490 a week) saw their jobless rate soar to nearly 20% in May, according to a paper published last month by University of Chicago economists. (In other words, 1 in 5 workers looking for a job couldn’t find one.)
By comparison, the top fifth of earners (who make more than $1,631 a week) saw only a modest increase, to 3.8%, in that time period.
The withdrawal of retirement savings is a likely indication of this “two-track economy,” whereby the rich have weathered the crisis relatively unscathed while those at the bottom have suffered income loss to a disproportionate extent, said Christine Benz, the director of personal finance at Morningstar.
Investors are responding to the crisis by shifting to a more conservative portfolio
Investors (19%) responded to the bear market by shifting to a more conservative portfolio — 9% of respondents sold investments to boost their cash cushions and 6% sold all of their stocks. As of the survey date, current asset allocations for investment portfolios or retirement accounts remained conservative, with investors typically holding just 36% in stocks and a remarkable percentage in cash (24%).
Indeed, the global pandemic and its impact on the market and economy was a learning moment for investors, who reported these top five takeaways:
These portfolio strategies have emerged in recent times
- Need to have more cash reserves.
- Need to diversify more.
- Taking on more risk than necessary.
- The need to rebalance my portfolio more often.
A wide range of tools at your disposal through RiXtrema
Rixtrema provides you with all the tools that you may need to adjust your clients portfolio to suit the current market, starting from 401k Fiduciary Optimizer that gives you the ability to customise your clients Retirement plan in order to maximize the rate of return while reducing the cost. It also gives you Realtime, which are represented graphically in various reports, on how changes to the fund structure will affect the performance and the diversification of the plan,