Study Shows: Impact More Serious than Great Recession

One of the descriptors we hear frequently regarding the COVID-19 pandemic is “unprecedented.” And while that’s certainly true, there are still comparisons to be made to other events that have had similar effects on our lives.

A new study from Allianz Life Insurance Company of North America (Allianz Life) attempts to examine the way people feel about the economic impact of COVID by comparing it to the way they feel about another time of serious economic challenges, the Great Recession. And the results highlight that, even as we continue to struggle with many aspects of COVID-19, the vast majority of people surveyed believe the pandemic’s impact will be more significant than the Great Recession for both the economy and their personal finances.

According to the new 2021 Retirement Risk Readiness Study from Allianz Life, almost seven in 10 (69%) Americans (age 21+ in 2007) said they believe the pandemic will have a greater overall economic impact than the Great Recession (2007-2009), with retired respondents feeling most strongly (86%, versus 69% for near-retired and 68% for pre-retired). In addition, more than one half of all respondents (56%) said the pandemic also will have a greater impact than the Great Recession on their personal finances.

This study reflects the fact that most Americans are feeling greater anxiety than they did after the Great Recession in relation to a variety of topics. For example, when asked about “nervousness about your day-to-day finances,” 39% said that the Great Recession caused anxiety while a whopping 61% said the same about this pandemic. Likewise, when asked about “nervousness about your retirement savings,” the responses were 34% for the Great Recession to 66% for the pandemic. When asked to consider “your professional career,” anxiety was at 42% for the Great Recession and 58% for the pandemic. When asked about “how you think about saving and spending money,” the responses were 39% for the Great Recession and 61% for the pandemic. And finally, when asked about “how you think about managing market risk when saving for retirement,” 40% commented about anxiety during the Great Recession and a full 60% are concerned about managing market risk in the pandemic.

“Although the full story of this pandemic won’t be known for some time, it’s clear that the financial security of many Americans has been severely compromised,” said Kelly LaVigne, vice president of Consumer Insights, Allianz Life. “It is notable that so many people are concerned about both the short-term and long-term financial effects of this crisis. It’s crucial that Americans use this opportunity to consider any new risks that could affect their retirement planning and develop strategies to help mitigate those risks and future unexpected events.”

This study surveyed three categories of Americans to get different perspectives on retirement: pre-retirees (those ten years or longer from retirement); near-retirees (those within ten years of retirement); and those who are already retired. In addition to confirming the significant financial strain being caused by the pandemic, the 2021 study reinforced findings from 2020 that revealed most Americans are unprepared for the risk of an earlier-than-expected retirement.

More than two-thirds of respondents (68%) said they retired earlier than expected, up significantly from the 50% who acknowledged earlier-than-expected retirement in last year’s study. Similar to 2020, most said they had to retire for reasons outside of their control, including healthcare issues (33%, up from 25% in 2020) and unexpected job loss (22%, down from 34% in 2020). Early retirement may put them at greater risk given that more than four in ten (43%) Americans said they are unable to put away any money for retirement right now (up from 37% in 2020), and a similar amount (42%) believe that they are too far behind on their retirement goals to catch up (up from 31% in 2020).

It’s no surprise that the pandemic has caused financial strain. In fact, 49% of respondents said they can’t even think about saving for retirement right now because they are simply trying to get by day-to-day, and 56% said that swings om the stock market are making them nervous about their retirement savings. There are signs of hope, however, as 65% said they are now paying more attention to what they are saving and spending, and 58% have cut back on spending.

Furthermore, the pandemic has motivated those nearest to retirement to review their current retirement planning activity compared to last year before the pandemic began. These near-retirees are more active in pursuing a variety of strategies, including: saving enough in a retirement account (29% versus 23% in 2020); diversifying their retirement savings (42% versus 27% in 2020); researching expenses and risks associated with retirement (43% versus 35% in 2020); making a formal plan with a financial professional (37% versus 29% in 2020); and purchasing a product that provides a guaranteed source of retirement income (38% versus 30% in 2020).

“Black swan events like this global pandemic are often the trigger that convinces people they need to take a more proactive approach to managing risks that may come in retirement,” added LaVigne. “In that respect, it is encouraging to see that many Americans are taking this as a wake-up call and adding more risk management measures, including sources of guaranteed and supplemental retirement income, into their retirement planning process.”

Clearly, this pandemic is bringing financial risk and retirement planning to the forefront of your prospects’ minds and attention. If you’re not discussing their situation with them, you can bet someone else either is or shortly will be.

Charles K. Hirsch, CLU, is the president of Hirsch Communications Consulting, LLC, a communications consulting operation in Florissant, MO. For many years, Chuck was the editor and publisher of Life Insurance Selling magazine, and has published several of the leading life insurance industry magazines. Chuck continues to contribute articles on a regular basis to industry publications, in addition to providing a wide range of writing, editing, content development, and marketing services through his firm. He is a regular contributor to NAILBA Now e-Newsletter as well as to Perspectives magazine.