Transamerica survey reveals severe impact on retirement outlook for unemployed workers

The “Great Recession” has severely impacted the retirement outlook on displaced American workers who are unemployed or underemployed, according to a new survey released by theTransamericaCenterfor Retirement Studies. The survey, part of the 13th Annual Transamerica Retirement Survey, found that only 10% of displaced workers were “very confident” in their ability to retire comfortably. The survey was conducted February 2-10, 2012 among a nationally representative sample of 621 unemployed or underemployed people.

Impact on retirement accounts

The survey found a majority (61%) of displaced workers reported having a retirement savings account of any kind. Despite the vast majority’s familiarity (87%) with taxes and penalties that may apply, current financial challenges are such that more than one-third (35%) of respondents who have retirement accounts have taken a withdrawal from those accounts.

Of those who participated in a 401(k) plan at their most recent employer where they were fully employed, 45% indicated they have taken a withdrawal from these accounts, including 63% of the unemployed compared to 34% of the underemployed. Among the displaced workers, including those with or without retirement accounts of their own, the estimated median household savings in retirement accounts was approximately $5,800.

“Older workers have been hit hard by unemployment or underemployment and they are at greatest risk,” said Catherine Collinson, president of theTransamericaCenterfor Retirement Studies. “Many face challenges finding employment and, when they do, they will have much less time than younger workers to rebuild their savings before they reach retirement age.”

Impact on personal savings

The survey found that many displaced workers have relied on personal savings and/or gone into debt since becoming unemployed or underemployed. More than half (51%) have tapped into savings accounts. Nearly one-third (31%) have used credit cards, suggesting an increased likelihood of future carry-over balances. One in four (24%) have turned to family and friends for loans. In addition, the survey found that 30% do not have health care insurance (34% of the unemployed and 27% of the underemployed).

Underemployment versus unemployment

The survey showed that underemployed workers are faring better than the unemployed, most notably through opportunities to earn income, gain access to employer health coverage, and help alleviate the need to take withdrawals from retirement accounts. Although total household savings in retirement accounts is low among all displaced workers, the estimated median retirement savings of the underemployed (approximately $7,400) is more than triple that of the unemployed (approximately $2,400).

Policy actions

In order to help avoid further strains on Social Security, Medicare, and Medicaid, the survey report recommends that policymakers consider: extending the 401(k) loan repayment period for terminated participants, expanding current tax incentives such as the saver’s credit and catch-up contributions, offering tax incentives for job training and retraining, and stimulating jobs creation.

Source: Transamerica Center for Retirement Studies, press release, July 18, 2012.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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