Skip to main content


Home Sweet Retirement: Could COVID-19 Change How and Where Americans Retire?

We’ve barely seen the first signs of the pandemic easing up, and Americans already have their noses pressed to the glass, squinting to make out the new shape of the world after COVID. Will cities empty out? Is the golden age of restaurants over? Will office buildings stand as vacant husks, their decubicled former occupants permanently relocated to comfy suburban bedrooms?

There are hundreds of as-yet unanswered questions about the way the future will look, including some important ones about retirement. Will the pandemic change how — and where — Americans retire? Has it undercut their financial security? Is it making dense environments less appealing to retirees?

In the early months of 2020, the media painted a fairly apocalyptic future for a number of trends related to retirement. Stocks fell sharply in March, putting a quick dent in 401(k) plan balances. Grim stories out of nursing homes cast a pall on institutional living options for seniors. Urban outbreaks and unrest raised questions about the viability of cities, especially for older, more vulnerable residents. Sharp spikes in unemployment raised the specter of forced early retirement.

Were these predictions too gloomy, or will the pandemic truly change the how and where Americans retire? For one perspective on that question, Participant sat down with Alicia Munnell, Peter F. Drucker Professor of Management Sciences at Boston College’s Carroll School of Management and former assistant secretary of the treasury under President Clinton. Since 1998, she has served as director of Boston College’s Center for Retirement Research.

From our discussion emerged a picture of COVID-19’s impact on retirement that may be far less dire but also more complex than many early predictions. To summarize:

  • How we save. The pandemic had little impact on 401(k) plans, because it had little impact on the kind of people who have them.
  • Where we live. Regardless of what happens to cities and suburbs, the home will be more important than ever for retirement security.
  • How we work. Rather than forcing seniors out of the workplace, the pandemic made it easier for some seniors to stay working — which is good for their retirement security.

How We Save

The pandemic had little impact on 401(k) plans, because it had little impact on the kind of people who have them.

“The pandemic has not been a retirement issue,” Munnell said. “The people who have gotten hit hardest are the young and low earners, who don’t have any retirement savings outside of Social Security to start with. People with 401(k) balances probably feel like they’ve weathered this thing pretty well.”

As she noted in a February 2021 Retirement Center brief co-authored with Anqi Chen, COVID-19 had surprisingly little impact on retirement resources. While the employer-sponsored retirement system suffers from longstanding weaknesses, the pandemic did not seem to inflict any new wounds. The stock market did not collapse, despite its tumble in March 2020. Nor did turbulent markets spook participants into rushing for the doors. Only 5.6% of participants in a study by Morningstar made any changes to their portfolio allocations during the first quarter of 2020. And only 7% of plans that offer COVID-19 hardship withdrawals reported more than 5% of participants taking advantage of them.

The pandemic didn’t wreak the havoc that it might have. But that hardly means all is well.

“What it’s shown is that we have a two-tier country,” Munnell said. “Those who had the privilege to come through this have been inconvenienced a bit, but are basically economically secure. And the other half have lost their jobs, don’t have savings to fall back on and have been exposed to the virus more than others. It’s just highlighted all the inequities that have been there all the time.”

Lower-income workers were already struggling to build secure futures. Only the top 20% of households with 401(k)s have significant balances, according to Munnell; the rest have inadequate savings, or none. Lack of continuous coverage is partly to blame. Moving in and out of coverage reduces average balances for the typical 60-year-old from $425,000 to $159,000. Even worse, half of all households approaching retirement have no 401(k) savings at all.

Munnell wants to fix that problem. “The priority is to have as many people as possible covered by some type of retirement plan,” she said.

The pandemic has highlighted existing fault lines. Perhaps there is reason to hope it may spur extra efforts to bridge them.

Where We Live

Regardless of what happens to cities and suburbs, the home will be more important than ever for retirement security.

As with earlier fears about 401(k) plans, the most dramatic prophecies of urban doom have so far failed to materialize. Instead, the picture turned out to be a bit more nuanced, with the pandemic accelerating existing trends — from retail consolidation to the growing importance of homeownership to retirement security.

In today’s socially distanced world, it seems like a lifetime has passed since 2016 when The New York Times published an article headlined, “The Future of Retirement Communities: Walkable and Urban.” Now, sanctuary homes are in vogue. Urban refugees rushed to bid up prices in small towns and countryside homes, sometimes to their later regret. The pandemic tarnished the appeal of urban amenities, with museums, theaters and galleries remaining closed for months. More seriously, many of the retail establishments that added the charm and convenience that attract urban retirees are now gone. While Amazon, Home Depot and other major online retailers flourished during the pandemic, the florists, gift shops and boutiques that added local character have vanished, leaving empty storefronts. In addition, the National Restaurant Association has estimated that 17% of restaurants closed in 2020. When the crisis finally passes, retirees may decide that cities no longer offer enough enticements to offset the risks of living in a denser environment.

Yet none of these developments is entirely new. A report published by moving firm Hire a Helper noted that the states that lost the most people in 2020 were the same ones that headed up the list in 2019: California, New York, New Jersey and Illinois. And rather than ditching city life entirely, Americans simply continued moving from the most expensive cities like New York and San Francisco to smaller cities such as Boise, as they have been doing for a while. Nor did the retail apocalypse start with a lockdown: Store closures had already reached all-time peaks in 2017 and 2019 as America shed excess retail space. But there is good news mixed with the bad. If seniors do withdraw from crowded cities, cheaper urban real estate could draw young people back in.

In the end, no one knows exactly how COVID-19 will change the world outside our door. However, the world inside it is another story. Munnell believes that COVID-19 has underscored the critical importance of home ownership to most people’s retirement security.

“We’ve heard the shocking numbers coming out of communal living and nursing home environments,” she said. “That probably has made people more anxious to stay in their own home to age in place. There has to be a rethinking of services that can be provided at home, rather than in institutional settings.”

Munnell is now gathering data on the services retirees need to remain at home, assigning requirements into small (e.g., assistance with a broken arm), medium and large (e.g., round-the-clock nursing care) buckets. The problem is paying for it all.

“We don’t have any good long-term care insurance right now, and people don’t tend to buy it anyway. There have been public policy efforts to have a long-term care component of Medicare, but that has not been successful. It might be worth considering again, because you don’t really know which bucket you’re going to fall into, and you have the potential of a large extended expense that’s hard to insure on the private market. Maybe that’s more of a social insurance function that we do together.”

Short of Medicare expansion, she said, one way to pay for in-home services is by leveraging the value of the home itself.

“The house is a financial asset. Over time, people are going to have to tap the equity in their home to have adequate resources in terms of where they want to stay,” she said. “I used to be a big fan of reverse mortgages. And I still conceptually think they are the right answer. It’s just an impossible product to sell.” Seniors have spent their entire lives trying to get rid of mortgages, so they’re not eager for a new one. And the instruments are too complex. “Any product that you have to go to counseling [for] before you buy it is not really an easily accessible product.”

Public policy can help. One idea Munnell has advocated: giving seniors the option to defer property tax on their primary residence. The state would provide local aid to replace lost property taxes, so municipalities would not lose out. Then, when the home is eventually sold, the state would receive back property taxes with interest.

“On an individual basis, it’s self-financing. It allows people to use their own assets to support themselves.”

Whatever the specific solution, a broader trend is emerging: Even after being cooped up at home throughout the pandemic, seniors may come to find that their home is still the most important place in their lives.

How We Work

Rather than forcing seniors out of the workplace, the pandemic made it easier for seniors to stay working — which is good for their retirement security.

Seniors feared the COVID-19 recession would cut their working careers short. Instead, it may have extended working life for some — good news for their retirement readiness.

At first, the outlook was grim. “The pandemic brought age back into the conversation because the virus was more severe for older people,” Munnell said.

Concerns of a new wave of ageism arose, with seniors potentially seen as more vulnerable by employers, making a path to early exits easier. While downsized workers 62 and older could fall back on Social Security as a safety net, claiming benefits early would permanently reduce future monthly payments and put their long-term financial security at risk.

But as the recession unfolded, it became clear that the young, not the old, were suffering the highest levels of unemployment. The feared tidal wave of early retirements never materialized.

To Munnell, this is simply a return to trend. “Over time, the percentage of workers who grab their benefits as soon as they become available at 62 has been declining,” she said. “During the great recession of 2008 and 2009, that share ticked up for a few years, by about 4 or 5 percentage points. And then it started to decline again. I think we’ll see that exact same phenomenon happening again. The pressures to claim later remain, and that trend will continue.”

Which is fortunate, considering that Munnell believes that Americans should keep working well past full retirement age. “If you claim your Social Security benefit at 70 instead of 62, your monthly benefit is at least 76% higher. If people can keep working, it’s really the surest way to economic security.”

The pandemic may have made working longer easier for seniors — at least, for those who can work remotely.

“We did a study early on in the pandemic to see whether older people were more disadvantaged than the young in terms of working at home,” Munnell said. “I went in with the preconceived notion that they might not have been as good with computers and things like that. What we found was, older workers were as well-placed to work at home as younger workers. It’s taken a little while, and they’re not as cool as anybody’s children or grandchildren, but they can certainly do Excel and Word and email and text.”

Shaping a New Environment for Retirement

If America is wondering what the post-COVID future holds for retirement, it’s about to find out. As with the 2008 financial crisis, some of the pandemic’s effects will be felt immediately. Others will take years to fully emerge. In all likelihood, we will look back and see that the virus simply pushed us further down a road we were already traveling.

In the meantime, we face important choices that can’t wait until we reach the end of the story. “Coverage, tapping into the house and working longer” are three concepts Munnell wants people to take away in the wake of the crisis. Too many people have fallen through the cracks of the existing employer-sponsored retirement system, she argues, and we need to scoop them up with default programs. It’s also time to respect the central role that home ownership plays, both in caring for retirees and as a way to pay for that care. And we have to take advantage of the newly flexible workplace to keep older people working longer.

As the pandemic loosens its grip and we finally step back out into the world, it’s time to bring its lessons home.

More on Defined Contribution