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Americans Are Stuck on a Retirement Readiness Rollercoaster

By John Manganaro

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What You Need to Know

  • Retirement savings have been subject to wild swings since the start of the pandemic.

Retirement assets per U.S. household peaked at around $350,000 during the stock market’s pandemic highs in late 2021, marking an impressive rebound from the early pandemic low of $278,000, but they fell again through late 2022 to settle at approximately $305,000.

This is according to a new analysis published by SmartAsset, which shows retirement assets held by pensions and within 401(k) plans and individual retirement accounts have experienced severe turbulence over the past three years — causing a significant degree of pain for older workers and recent retirees.

According to the report, the real value of Americans’ retirement savings has plummeted thanks to the market volatility and the persistent bite of high inflation. This is a troublesome development for the wealthy, the report notes, and a severe challenge for older Americans of more modest means.

All in all, retirement holdings have increased by just about 2% since the first COVID lockdowns in early 2020, but prices shot up by a cumulative 16% between the end of 2019 and the close of the third quarter of 2022.

According to SmartAsset experts, this all goes to show that average retirements savings “pale in comparison to the massive cost of living increases in recent years.” They say Americans have been on a retirement readiness rollercoaster, and the ride isn’t set to stop anytime soon.

A Real Rollercoaster

As the SmartAsset report retells, the 2020 lockdowns created the largest quarterly drop in American net worth in some 70 years. During the first quarter of the year, more than $5.8 trillion was wiped from American households’ net worth.

However, as the report notes, account values bounced back in a big way. Specifically, from the beginning of 2020 to the end of 2022, nearly $31 trillion was added to U.S. households’ and U.S. nonprofits’ net worth.

As for the general stock market, the report points out that “wild fluctuations” have taken place in response to major policy pivots experienced in the prior three years — particularly the initial COVID lockdowns and later the Federal Reserve’s race to increase interest rates.

Direct and indirect holdings of corporate equity owned by households and nonprofits dropped by a whopping $7.7 trillion in Q1 2020, the report shows. While this was quickly recovered (and then some), another $7.9 trillion drop in corporate equity occurred in Q2 2022 when the Federal Reserve started increasing interest rates, the report states.

Overall, corporate equity owned by households and nonprofits increased by a net $5.2 trillion between the beginning of 2020 and end of 2022, according to SmartAsset.

Another important storyline, according to the report, is the swing in value of real estate owned by households and nonprofit organizations, which grew by more than $14 trillion between the beginning of 2020 and the end of 2022.

“As the Federal Reserve maintained historically low interest rates [through 2020 and 2021], Americans purchased homes or refinanced into 2% to 3% financing,” the report notes. “With low housing supplies, competitive markets and a major shift in the way people work underfoot, demand caused the value of real estate to skyrocket at times.”

What It’s All Meant for Retired Americans

While the SmartAsset report focuses on the numerical rollercoaster that American retirement savers have endured in recent years, other recent analyses have shed more light on the human toll of the market volatility and the rising cost of living.

A new analysis published by the Center for Retirement Research at Boston College, for example, emphasizes the significantly weakened financial position that many baby boomers have found themselves in as they enter retirement.

Not only has this age cohort suffered from COVID disruptions and the impact of inflation and rising interest rates, but the lingering effects of the Great Recession, which robbed many boomers of their most productive years in the workforce, are also a weighty anchor.

According to another recent analysis and accompanying chart book published by the Economic Policy Institute, many older workers say the economic conditions that have prevailed for the past decade or more have left them feeling stuck in their jobs. Troublingly, some 50.3% of older workers say they are stuck in physically demanding jobs, while an even larger majority (54.2%) of older workers report being exposed to unhealthy or hazardous conditions at work.

Other sobering reporting from the Pew Charitable Trusts shows a lack of retirement savings among the U.S. workforce could cost the federal government nearly $1 trillion before 2040 while simultaneously putting significant strain on the budget of every state, to the tune of another $330 billion.

According to the Pew analysis, this massive amount of social spending does not fill the retirement income gap facing the American workforce, and short of a major course correction, many households will be forced to reduce their standard of living in retirement.

(Image: Adobe Stock)

John Manganaro

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