The coronavirus pandemic is hitting millennials’ retirement goals more than any other generation.
One in 5 millennials have tapped their retirement savings during the COVID-19 outbreak, surpassing other generations, according to a new study by Bankrate.com highlights. About 1 in 12 Gen Xers and 1 in Baby Boomers dug into their retirement savings during this period.
The move by millennials comes only a year after a similar survey found a larger share of that generation said they were ahead of their retirement savings goals versus Gen X and baby boomers.
“It does come as a shock since over the last decade we have seen a real prioritization of emergency savings on the part of the millennials to the point it’s often cited as their top financial priorities,” said Greg McBride, chief financial analyst at personal finance site Bankrate.com.
‘No finger-pointing here’
While millennials were proactive in saving for retirement, many may have prioritized these contributions over setting aside an emergency fund first.
“These findings are not surprising since a lot of people will tell you should start saving for retirement and have a 401(k) plan but people take advantage of that before creating six months’ worth of living expenses,” said Ande Frazier, CEO of myWorth, an online educational platform geared towards helping women with their finances.
The coronavirus relief legislation called the CARES Act has made it easier — and less punitive — to withdraw funds early from your 401(k). The act allows those suffering coronavirus-related hardships — such as sickness or job loss — to withdraw up to $100,000 without the typical 10% penalty. If you pack the amount you took out within three years, you also don’t have to pay taxes on the withdrawal.
“Even if the CARES Act waives the penalty you’re still taking money having to pay ordinary income tax on it,” Frazier pointed out.
McBride said the worst of the pandemic and state shutdowns have hit the youngest and lowest-earning workers hardest — the same ones who have the least amount of assets to tide them over during difficult times.
Bankrate data provided to Yahoo Money showed that 17% of millennials became unemployed after Jan. 1 of this year.
“There’s no finger-pointing here,” he said. “These [withdrawals] are a reflection of the recession.”
‘Having liquid money is critical’
Once millennials become financially secure again, they should shift their mindset and start putting away for an emergency fund — to help them gird against future hardships.
“I would like to see millennials make sure they’re protecting themselves through wealth [preservation] measures, [like] good health insurance, and even life insurance,” Frazier said. “I would make sure those things are in place so times like this don’t slow them down.”
But if you have competing financial obligations such as paying down debt like student loans and saving money for an emergency, it’s best to get that rainy day fund first, Frazier said.
“Having liquid money is critical,” she said. “It sets you up for all the other things you need to do.”