More than one-third of unemployed or underemployed workers who have retirement accounts have taken withdrawals from their accounts, according to a study by the nonprofit organization Transamerica Center for Retirement Studies.
The study evaluates the state of retirement readiness among unemployed and underemployed workers. It found that 62 percent of displaced workers are “not too” or “not at all” confident about their retirement prospects, and that 36 percent of displaced workers have taken withdrawals from their accounts.
“Amid signs of economic recovery and an improving unemployment rate, millions of Americans are still unemployed or underemployed,” says Catherine Collinson, president of the retirement studies center. “Many displaced workers have raided their retirement accounts to make ends meet, and many may be overlooking the importance of retirement benefits as they seek meaningful employment.”
Forty-one percent of displaced workers do not have a retirement savings account of any kind.
“The passage of time out of work, especially the one-year mark, can have a detrimental effect on retirement accounts,” said Collinson. “Forty-two percent of those displaced for a year or more took a withdrawal compared to only 23 percent of those displaced for less than a year.”
Among all displaced workers, the estimated median household savings in retirement accounts is approximately $7,500. It is lowest for those in their 40s, with only an average of $1,900 in their retirement accounts. This group also has the highest rate of withdrawal at 55 percent, the study says. Those unemployed or underemployed in their 60s have the highest rate of retirement savings at $93,000.
“Many displaced workers may be overlooking the importance of retirement benefits when seeking employment opportunities, which could put them at a greater disadvantage in terms of rebuilding their retirement savings,” says Collinson.
Only 17 percent of displaced workers cite generous retirement benefits as one of their top three most important characteristics of a future employer. The majority (56 percent) said competitive pay, followed by company stability (33 percent) and a convenient commute (31 percent), are most important to them, Transamerica says.
Transamerica recommends displaced workers take part-time jobs if necessary to avoid excessive time out of work. The center also advises displaced workers to look for free or affordable classes and training to build job skills.
Employers, along with their retirement plan advisors and providers, should provide training and counseling for laid-off workers and offer competitive retirement benefits, Transamerica says.
At the same time, policy makers should extend 401(k) loan repayment periods for terminated employees, expand retirement plan coverage and create more automated features for retirement plans, the center says.