Wells Fargo has published its 2020 “Wells Fargo Retirement Study,” based on a survey of roughly 4,600 people conducted in August by The Harris Poll.

The annual research report examines the attitudes and savings behaviors of working adults and retirees, with this year’s edition coming amid the heart of a pandemic and the worst recession in generations. Naturally, the researchers included many pointed questions about the COVID-19 crisis, but they also focused on the important and evolving topic of defined contribution (DC) plan decumulation.

Speaking during a conference call introducing the new research, Nate Miles, head of DC business at Wells Fargo Asset Management, said there is no doubt that COVID-19 has driven some workers even further behind in their retirement goals. Notably, working men report median retirement savings of $120,000, while working women report $60,000.

“Yet for those impacted directly by COVID-19, by a job loss or in other ways, men report median retirement savings of $60,000, which compares to $21,000 for women,” Miles said. “With individual investors now largely responsible for saving and funding their own retirement, disruptive events and economic downturns can have an outsized impact on workers who are already more vulnerable to financial challenges.”

As the Wells Fargo survey has shown year in and year out, working Americans, and even the most disciplined savers, are not saving enough for retirement.

“The good news is that for many of today’s workers, there is still time to save and prepare,” Miles said.

The Pandemic’s Uneven Impact

The study finds that different demographic groups are, on average, experiencing very different financial impacts from the pandemic. The data makes it clear that women and younger generations are falling behind their savings goals more often than older men.

“Women are less sure if they will be able to save enough for retirement, and they appear to be in a more precarious financial situation than men,” Miles warned. “Barely half of working women say they are saving enough for retirement, or that they are confident they will have enough savings to live comfortably in retirement.”

The data suggests women directly impacted by COVID-19 have saved less than half the amount for retirement that men have and are much more pessimistic about their financial lives. In addition, women impacted by COVID-19 are less likely to have access to an employer-sponsored retirement savings plan and are less likely to participate if they do have access.

Though Generation Z workers started saving at an earlier age and are participating in employer-based savings programs at a greater rate than other generations, they are nonetheless also worried about their future. Fifty-two percent of Generation Z workers say they don’t know if they’ll be able to save enough to retire because of COVID-19, 50% say they are much more afraid of life in retirement due to COVID-19, and 52% say the pandemic took the joy out of looking forward to retirement.

At the same time, the study shows that despite a challenging environment, many American workers and retirees remain optimistic about their current life, their finances and their overall future. A majority of workers say they are very or somewhat satisfied with their current life (79%), in control of their financial life (79%), are able to pay for monthly expenses (95%), and feel confident they are able to manage their finances (86%).

The Decumulation Challenge

Despite an increasing shift to a self-funded retirement, nearly all workers and retirees say that Social Security and Medicare play or will play a significant role in their retirement—a reality underscored by the pandemic.

According to the study, 71% of workers, 81% of those negatively impacted by COVID-19, and 85% of retirees say that COVID-19 reinforced how important Social Security and Medicare will be or are for their retirement. Overall, workers expect that Social Security will make up approximately one-third of their monthly budget (30% median) in retirement. And even among wealthy workers, Social Security and Medicare factor significantly into their planning.

Of course, the dependence by many on the programs also drives anxiety, especially at a time of substantial political division in the U.S. The vast majority of the study’s respondents harbor concerns that the programs will not be available when they need them and they worry that the government won’t protect them.

A Spending Paradox

Lori Lucas, president and CEO of the Employee Benefit Research Institute (EBRI), also participated in the research call. She highlighted a finding in the data that suggests people are reluctant to actually spend down their DC plan assets.

“This is puzzling because of what we know about the lack of retirement assets and confidence reported by workers and retirees,” Lucas said.

The data shows that retired households with less than $200,000 at retirement tend to spend down only about a quarter of their assets in the first two decades of retirement. The group with the greatest amount of assets, on average, spends down just 11% of DC plan assets during this time frame.

“This is a dynamic that we are going to be studying further and that I expect to evolve in coming years, as more people enter retirement without pensions and significant amounts of assets outside of their DC plans,” Lucas said. “Not only do we need to help people save enough. We should also figure out ways to help these people who get to retirement with a nice nest egg, but who don’t know how to spend it down. In fact, we don’t really know yet with confidence why they are not spending these assets.” 

Lucas said that, anecdotally, it is common to hear retirees say they want to maintain their balance, either because they’re motivated to leave behind their assets for loved ones, or because they want to avoid losses. Many retirees also simply say they do not need to spend a lot of money to be happy in their lifestyle, and that they get a sense of satisfaction and security by maintaining their wealth even as they age.

“We very commonly see serious loss aversion among retirees,” Lucas said. “Beyond investment losses, many people actually see spending as a loss in retirement. Seeing their accumulated assets wind down is just too painful for some people. For this reason, I think the majority of people will tell you their goal is to maintain their assets during retirement.”

Lucas said this is in some ways a laudable goal, but there is certainly more room for the retirement plan industry to create innovative spending solutions to help people meet all their retirement goals.