31M have or plan to withdraw from retirement due to COVID-19: survey

Bankrate.com released a survey noting that 31 million Americans have or plan to tap into their retirement savings because of the COVID-19 pandemic. Joining The Final Round to discuss the survey further is Bankrate.com's Chief Financial Analyst Greg McBride.

Video transcript

SEANA SMITH: Welcome back to "The Final Round" here on Yahoo Finance. It's time for Retirement Ready brought to you by Fidelity investments. And for that, I want to bring in Greg McBride, chief financial analyst for Bankrate.com. And Greg, Bankrate is out with the new report. And it's pretty interesting. It found that 31 million people have tapped or plan to tap their retirement savings because of some financial hardships in regards to the coronavirus. The question is just, have we seen anything like this before, 31 million people, that many people potentially withdrawing from their retirements because of their current financial condition?

GREG MCBRIDE: Well, the financial fallout from the pandemic continues. I mean, we've seen in other polls people already running through their emergency savings, adding to their debt loads. And in a lot of cases, retirement savings becomes that next domino that gets knocked over. So you know, in context, no, we've never seen numbers like this before because we haven't seen numbers like this before in a lot of different fronts, the 41 million people that have lost jobs in the last weeks, the potential contraction in the economy.

There's a lot of unprecedented about this pandemic. And unfortunately, the household impact, from a personal finance standpoint, also unprecedented.

MYLES UDLAND: And Greg, I know it's early days, I guess, in this recession and the fallout from this. But I mean, if we look back, I guess it's now 50 years, really since the retirement system kind of reoriented towards you know the system we know today where people are kind of on their own for the most part. Do you suspect that this might cause a rethink of how we put the burden on, you know, consumers, I guess, right, regular citizens like us to manage our own retirement? Because I think a lot of this data shows how thin the margins are for so many people, even those who have been steadily working for years.

GREG MCBRIDE: Yeah. I mean, and we see the highest propensity to tap into those retirement accounts among the youngest workers, millennials and even the Gen Zers. And the concerning thing about that is not only did they have the biggest retirement savings burden in history by virtue of the fact that more of it's on their shoulders. Their lifespans are longer. Health care costs are going to be higher in the future. But by pulling that money out now, they have the potential of missing out on decades worth of compounding. And so the $5,000 you pull out today could be $30,000 $40,000 $50,000 by the time you retire. So I think it's really important to view it through that lens and maybe, you know, consider what other alternatives you may have before you have to tap that retirement account. Do what you can to keep that at bay.

To answer the question, Myles, listen, I think it's definitely going to be a talking point. But it was a talking point after the financial crisis too. And we didn't see a whole lot of change.

RICK NEWMAN: Hey Greg, there are gonna be people literally running out of money at some point. You know, at some point, the stimulus checks are not going all that far. The federal aid's going to run out. What are-- what else can you do if you don't want to tap-- I mean, sell the furniture or something? Like, if you don't want to tap your retirement accounts, what are some other strategies?

GREG MCBRIDE: It's tough. I mean, you know, and you're exactly right. I mean, we found prior to the stimulus checks going out, 80% of Americans that expected to receive one said it was somewhat or very important to their near-term financial future and that they didn't expect-- about 2/3 of them said it wouldn't-- wouldn't get them through the next three months, so you know, to your point.

As for the steps to take, if you're eligible for unemployment, file for that right away. As we've seen in a lot of states, it takes a long time before you actually start to see the money. See what other programs you might be eligible for, food stamps, Medicaid, other state programs. Call your creditors. Seek payment relief, your mortgage, your car loan, your credit cards, if you can get temporary payment relief there, that creates some breathing room in the budget for a period of time so you can focus the limited dollars you have coming in on the real essentials like food and medicine, and you know, really kind of keep at bay that need to tap that retirement account as much as possible.

But you know, what we're seeing is that the burden of this recession is falling most on the youngest workers and the lowest-paid. And those are often those with the least other options and least other resources. Retirement accounts often become the piggy bank that they have to turn to.

SEANA SMITH: All right, Greg McBride, chief financial analyst for Bankrate.com. Really interesting survey. Again, 31 million people have tapped or plan to tap their retirement savings because of coronavirus. Thanks so much for joining us today.

GREG MCBRIDE: Thank you, Seana.