40% of low & moderate income households lost money during the pandemic: RPT

Tim Shaw, Associate Director of Policy for Aspen Institute’s Financial Security Program, joins Yahoo FInance’s Kristin Myers and Alexis Christoforous to discuss findings showing pandemic impacts on retirement savings.

Video transcript

KRISTIN MYERS: Time now for our "Funding Our Future" segment. And today, we're going to chat about the impact the pandemic had, both on short-term and retirement savings. We're joined now by Tim Shaw, Associate Director of Policy at Aspen Institute Financial Security Program. Tim, thanks so much for joining us.

So you have a new study on how the pandemic weighed on savings, both retirement and the short-term savings for most Americans. What did the study find? What were the results?

TIM SHAW: So we've just released this study of a survey that we conducted in partnership with Morningstar, DC, and Newark at the University of Chicago on the pandemic, and savings, and financial security during that time. And we found three key things. One, we found what a lot of studies have found-- that financial security really did take a hit.

One in three households lost income during the pandemic, and that was particularly hard on low to moderate income families. The second is that people did withdraw from retirement accounts. But as you alluded to, emergency savings played a really critical buffer role for households that we can get into in more detail later.

And last, we found that they were wide-- continue to be wide racial disparities when it came to retirement savings. So on that first point with household income, as I said, one in three households overall lost income. But that raised to 40% for low and moderate income households. So this dynamic that we're seeing where the recession hurt everyone, but it particularly for those who already didn't have a lot of resources, really was borne out in the data.

On the emergency savings and retirement savings side, the vast majority of people didn't withdraw from retirement funds. But there was an uptick-- a 2/3 up to about 11% or 13% of households withdrew from retirement savings. Now, we usually really think about-- go ahead.

ALEXIS CHRISTOFOROUS: Tim, I want to talk more about that. Because for lots of folks, dipping into a 401(k) or some sort of a retirement account is sort of the last resort, because you can also get penalized on your taxes and so forth for doing something like that. So what was the trend there? For those who did have to dip into retirement savings, who were they?

TIM SHAW: Yeah. So the people who were most likely to withdraw are low and moderate income households. But we also saw there was-- you mentioned that there are penalties-- people don't like to withdraw. We did see a policy affect here.

There was the federal legislation during the pandemic that allowed people to withdraw some amount of money without penalty. And we found that when employers took up that exemption, people actually did withdraw. So there was increase there. But the other effect that we saw was that people who didn't have an emergency savings buffer were also more likely to withdraw. So there really is this connection between whether or not you have that short-term savings buffer and whether you're forced to dip into that long-term savings buffer, because we know people don't really want to dip into that retirement savings, and rightfully so.

KRISTIN MYERS: So, Tim, it's never great when you hear of folks dipping into their retirement savings or having to heavily rely on some of those savings that are usually set aside for some of those emergencies. Connect the dots for everyone-- what are the long tail implications going to be of this?

TIM SHAW: I think there's-- one is that we need to be on a footing where people are able to get back into the system. Some of the long-standing inequities in the system in terms of access to retirement and emergency savings continued through the data. So for low and moderate income households, they only had $0.08 saved in emergency savings for every $1 that other households have. And so there are policy implications there to give people access. And also as you are thinking about your savings plan and your priorities, understand that your short-term savings are just as important as your long-term-- that your investment in emergency savings is an investment in the future.

ALEXIS CHRISTOFOROUS: What would you say, though, to people hearing this, and they're a little discouraged-- maybe they did have to tap into those retirement savings or emergency fund. And now they feel like they're behind the eight-ball and they need to sort of play catch-up. What are some real things that they can start doing today to make them feel better about all that?

TIM SHAW: Yeah. I think-- the hope, I think, is from the policy perspective is that we're really looking towards the vaccines ramping up and the economy getting back on its feet. I think folks know-- are experts in their own budgets-- they know what they can afford and they can't. And so really look out for those opportunities to dig in, save a little money.

You just talked about the vacation issue and affordability being an issue there. But also, I think, pay attention to the economic opportunities that should be coming down the pike with a lot of federal investments in the economy, and going to get a vaccine, and getting back to normal life. I think those will be the ticket to getting back into getting into the economy again.

KRISTIN MYERS: Tim, I'm wondering, following on that, if there's more that the government could or should be doing-- perhaps further stimulus might be needed to make up some of those gaps for folks who did have to tap into those savings accounts.

TIM SHAW: I think there's a big role for the federal government to play. There obviously has been passed a lot of relief funds. But I think the investments in infrastructure that are being debated on the Hill right now are really an important next step in making sure that people have the funds they need and the jobs start to come back online where they have those funds.

But what I'll also add that's related to this conversation in particular is that we need to also be looking into the long-term about people's ability to save up and build wealth. After the last recession, the Fed has some data that the typical household didn't regain its wealth back all the way up until when the pandemic started. And so they really didn't get back to where they were even prior to the Great Recession.

And we need to not be in that position again when it comes to this recovery. And so what does that mean for policymakers? First, I think it means we need to continue to expand access to retirement accounts. We know that people are even significantly more likely to be able to save when they get that job and are able to get back on their feet if they have access to those accounts.

I think, second, we need to make sure that emergency savings are part of that situation. Our study finds that emergency savings really are an important buffer, and that we can use the tools we know are available for retirement savings for emergency savings as well. And there are powerful policy tools that should go over there. And an inclusive savings policy agenda needs to not fall off the table.

There are a lot of things out there on the agenda. The Biden administration has talked about the care economy, housing, obviously, the recent push for UI and checks that got enacted into legislation-- all of those things are important. But the financial infrastructure of households for inclusive savings needs to be there as well.

ALEXIS CHRISTOFOROUS: And lastly, before we let you go, Tim, what can companies do, employers do to help assist their employees with what just not their everyday savings, but in particular their retirement savings?

TIM SHAW: Yeah. I think the biggest thing there are two things. One, if you don't offer a plan, offer them. There are a lot of things coming online right now, facilitated in part by policy, that make it cheaper for employers who don't offer plans currently to do so. Some state plans offer them free to employers, and also some new products are coming online that help small businesses pool their money and get those plans cheaper to offer to their workers.

I think the second thing is to make those plans auto-enrolled. We know that you can double the participation of your workers in savings plans when they have auto-enrollment. They're able to opt out, you're not forcing them to save, but that is really powerful an important tool for workers.

And if you have the option, more and more providers are attaching emergency savings to those products. And so if that's an option, explore it with your retirement savings provider, and see if you can give that to. Because we know right now, again, through this research, that emergency savings is an important part of the overall savings and retirement picture.

KRISTIN MYERS: All right, Tim Shaw from Aspen Institute's Financial Security Program, thanks so much for joining us for our "Funding Our Future" segment. And "Funding Our Future" is an alliance of organizations dedicated to making a secure retirement possible for all Americans.