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Brett Arends's ROI

Aug. 7, 2020, 11:02 a.m. EDT

COVID-19’s next threat to your 401(k)

The crisis could blow a $60 billion hole in retirement plans

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By Brett Arends, MarketWatch

Photo by Doug Mills-Pool/Getty Images
Deborah Birx and press secretary Kayleigh McEnany practicing social distance in the White House

It is insane that our tax-deferred retirement plans depend on our employers, and we’ve got yet more reasons to prove it.

Sixty billion of them.

That’s how many dollars that U.S. workers are likely to lose out of their retirement savings because companies are slashing their 401(k) matching contributions.

No, really. And half those losses are falling on millennials.

The calculations come from MagnifyMoney.com, and they aren’t a stretch.

Sixteen percent of U.S. employers told researchers they planned to suspend the company match for the next 12 months as a result of the lockdown.

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Based on the typical matches paid, that works out at around $13 billion in missed contributions.

The average match lost would be about $1,100, and about 11.4 million workers would be affected, they estimate.

And when you look at the ages of workers, and apply a typical annual return of 6% on investments, that comes to a $59 billion hole in retirement savings.

Millennials, the bulk of whom are in their 20s and 30s, are paid less on average than baby boomer and Generation X workers. But that money would have much longer to compound.

Losing a $1,000 company match at age 25 is losing more than $10,000 from your pension at age 65.

Actually, MagnifyMoney is understating the costs because they are looking at how much you lose by age 65. But we’ll need those investments and savings until the day we die, which for growing numbers of people means into their 80s and even 90s.

They’re also not counting any cost to long-term economic growth from the pandemic, the lockdowns and the aftermath.

Add all this to the growing costs, social and economic, of the lockdowns. It will be fascinating to see the final tally. We won’t know for a long time how many lives we managed to extend, and for how long, and how much we lost doing so.

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