3 in 10 Americans Withdrew Money From Retirement Savings Amid the Coronavirus Pandemic – and the Majority Spent It On Groceries

As the coronavirus pandemic continues to pummel the economy, many Americans are not only decreasing their retirement contributions, but some are raiding their retirement accounts to pay for essentials. A new survey by MagnifyMoney found that 3 in 10 Americans have dipped into the funds meant to be reserved for their golden years — and the majority of those who have done so spent their nest egg on groceries.

Key findings

• The survey found that 47% of savers have either stopped or lowered their retirement savings contributions amid the coronavirus pandemic. Specifically, 21% have reduced their contributions, while 26% have stopped saving altogether.
• Of those with a retirement savings account, 3 in 10 have withdrawn funds from their account within the last two months. Another 19% said that they plan on doing so but haven’t yet. On average, those who withdrew funds took out $6,757.20.
  • There are generational differences in who is making withdrawals: 40% of Gen Xers took money from retirement versus 37% of millennials. Only 7% of baby boomers have taken money from their nest egg.
  • Of those with six-figure incomes and above, 37% have taken money from retirement funds.
• More than half of those who took out retirement money did so to cover necessary expenses like groceries or housing payments and bills, and 1 in 4 wanted to take advantage of legislation allowing penalty-free withdrawals.
• Of those obligated to take required minimum distributions (RMDs), 56% plan to skip that in 2020 as allowed for by the Coronavirus Aid, Relief and Economic Security (CARES) Act. That’s mostly true for millennials and Gen Xers, who are likely beneficiaries who have inherited a retirement plan. Far fewer baby boomers and members of the silent generation plan to forego their RMD.
• Retirement accounts aren’t all that’s getting raided: Nearly a third of Americans have withdrawn funds from an investment account other than retirement savings over the last 60 days.

Savers are decreasing their retirement contributions

The COVID-19 pandemic has caused severe economic fallout, from record-breaking unemployment levels to a turbulent stock market. As a result, our survey found that many Americans are either decreasing their retirement contributions — or pressing pause altogether.

Overall, we found that nearly half of Americans have made major changes to their retirement contributions, including 21% who have lowered the amount they are contributing and 26% who have totally stopped making contributions. Notably, one of the generations most likely to pause their retirement contributions was actually the age group closest to their golden years — baby boomers — with 53% stopping their contributions.

Meanwhile, 17% of millennials have paused their retirement contributions, followed by just 10% of those in Gen Z. The sheer number of Americans who are dialing back on what should be a main financial priority underscores the dire financial state that many people currently find themselves in, as the economy continues to grapple with the havoc caused by COVID-19.

People are raiding their retirement accounts to pay for essentials

While the high rate of savers who are pausing their retirement contributions is certainly a cause for concern, what is even more staggering is the number of Americans who are raiding their retirement accounts and withdrawing funds well before their golden years.

Our survey found that within the last 60 days, 30% of Americans have taken money from their retirement accounts due to coronavirus-related circumstances. The average amount being withdrawn is $6,757.20. An additional 19% haven’t withdrawn funds yet, but have plans to.

Part of the reason that so many Americans are making early withdrawals may be due in part to a provision offered by the coronavirus relief bill, that waives the early withdrawal penalty for coronavirus-related withdrawals up to $100,000 from qualified retirement plans and IRAs. In fact, our survey found that 24% of people who withdrew funds early did so to take advantage of that legislation.

However, these were the most-cited reasons for raiding retirement accounts:

• Covering expenses (52%)
• A job loss (26%)
• Concerns over losing money in the stock market (15%)

The fact that the majority of respondents were withdrawing funds to cover essential expenses highlights a disheartening reality. Our survey revealed that 60% of respondents used their golden-year funds to pay for groceries, 42% spent it on household bills, 31% used it for rent or mortgage payments and 27% used it for debt payments. Another 20% haven’t spent the funds yet.

We found that 60% of those who have withdrawn money from their retirement accounts regret their decision to do so. Notably, 77% plan to pay back those funds.

How the coronavirus is impacting retirement savings

The coronavirus aid bill impacts qualified retirement plans and IRAs in several different ways, but it essentially makes it easier and less expensive for Americans to access their nest egg funds during this time of economic uncertainty. The results of our survey indeed found that many Americans are taking advantage of these allowances, and are citing legitimate reasons — like paying for essentials — for taking such actions.

One of the changes made by the coronavirus relief bill is concerning RMDs, which is the minimum amount you are required to withdraw from your retirement account each year. RMDs typically apply to savers who reach a certain age or beneficiaries that inherit an IRA.

However, the CARES Act has waived RMDs for 2020, and our survey found that many Americans plan to take advantage. Of survey respondents who are required to take a RMD in 2020, 56% are planning to skip it this year. While our survey found that many savers are withdrawing their retirement funds early out of necessity, this finding suggests that there are still savers who do not want to cash out on investments that have sunk significantly in value due to the COVID-19 crisis.

Managing your retirement plan during such turbulent times might not feel like a financial priority, especially if you’re facing unemployment, furlough or a growing pile of unpaid bills. However, if you do have to dip into your nest egg, it’s important that you take an informed and measured approach.

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,239 Americans with a retirement savings account. The sample base was proportioned to represent the overall population, and the survey was fielded April 28-May 1, 2020.

We defined generations as the following ages in 2020:

• Millennials are ages 24 to 39.
• Gen X are ages 40 to 54.
• Baby boomers are ages 55 to 74.

Members of Gen Z (ages 18 to 23) and the silent generation (ages 75 and older) were also surveyed, and their responses were factored into the overall percentages. However, we excluded them from the generational breakdowns due to the low sample size among both of these age groups.