Most Americans didn't tamper with their retirement savings even in pandemic, study finds

Dhara Singh
·Reporter
·3 mins read

Even a worldwide pandemic couldn’t keep most retirement savers from investing in their futures, according to a new analysis.

Despite millions of job losses and major uncertainty surrounding the COVID-19 outbreak, only 2% of 401(k) or other defined contribution plan participants stopped contributing in the first half of 2020, according to a recent data analysis from the Investment Company Institute, an association of investment funds.

The number is much lower than the 4.9% of participants who had stopped contributing to their retirement plans during the Great Recession and financial crisis.

“This is the remarkable thing about retirement savers — that they’re really long-term focused and they have an ability to stick to the plan paycheck by paycheck,” said Sarah Holden, ICI senior director of retirement and investor research. “They are less worried about short-term fluctuations.”

The number is much lower than the 4.9% of participants who had stopped contributing to their retirement plans during the Great Recession and financial crisis. (Source: Getty Creative)
The number is much lower than the 4.9% of participants who had stopped contributing to their retirement plans during the Great Recession and financial crisis. (Source: Getty Creative)

Another reason for staying the course: Many of these retirement investors never faced unemployment because they are generally higher earners who could work from home.

“Although the number of layoffs was breathtaking, it was concentrated at first in the service sector,” said Amit Chopra, a certified financial planner at Forefront Wealth Management. “Restaurant employees, barbers and hairdressers, and other businesses like that typically don’t offer their employees a 401(k) plan, and so those who have maintained their jobs have had no reason to lower contributions to their 401(k)s.”

Those who didn’t panic ‘should be in a great position right now’

Despite a volatile stock market — the S&P 500 had dropped 34% on March 23 from its February 19 high, most retirement savers didn’t blink.

The study found just 8.3% of defined contribution participants changed their account balance’s asset allocation, while 5% changed the asset allocation for their contributions. Those who remained invested in stocks saw the markets recover and reaped the gains.

“The stock market is back to all-time highs, so for those of you who did not panic and sell during the pandemic crash should be in a great position right now,” said Luke Lloyd, wealth advisor and investment strategist at Strategic Wealth Partners.

401(k) loan activity edged down in the second quarter

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

Loan activity also waned in the second quarter, with just 15.6% of participants reporting an outstanding loan, down from 16.3% in the first quarter. That rate is the lowest since the first quarter of 2014.

Part of the drop in loan activity could be because more people opted for a withdrawal after the CARES Act — passed in March — eased early withdrawal restrictions, Holden said. Under the CARES Act, retirement investors could withdraw up to $100,000 for a coronavirus related hardship without the 10% penalty for an early distribution. They also can avoid paying taxes on the withdrawal as long as they pay back the amount within three years.

The study found that 2.9% of plan participants took a coronavirus-related distribution in the first half of the year.

“It’s more like a loan than actual distribution,” Holden said. “Policymakers have recognized we’re in a tough spot. This allows people to access this money that is earmarked for retirement.”

Dhara is a reporter Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.

Read more:

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.