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Coronavirus pandemic leads to all-time lows in retirement savings

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Retirement contributions and new enrollments in employer-sponsored plans have tumbled to record lows amid the coronavirus pandemic, advisors report in the latest Retirement Advisor Confidence Index — Financial Planning's monthly barometer of business conditions for wealth managers.

Retirement planning confidence seemed to have stabilized in the most recent survey, but there's no denying that the economic uncertainty that has accompanied COVID-19 has clients worried.

"The coronavirus has really changed things," says one retirement planner. "People are scared and really nervous about the market and a possible depression."

At a time when many businesses are struggling to stay afloat and laying off workers, advisors are seeing fewer clients opening up workplace-sponsored savings accounts.

The component of RACI that tracks new participants in employer-sponsored plans dropped to 38.1, down 20 points from the same period a year ago, marking the lowest score ever reported in the survey.

"It's clear the current pandemic and unfolding economic effects from it are taking a toll on not just retirement business, but all business in general," one advisor says. "Many people have been furloughed or are now unemployed, which halts retirement benefits being offered across the nation, as well as the amounts in retirement funds."

Overall, the composite RACI score in the most recent period checked in at 43.5, a one-point uptick from the previous month, but off 11.5 points from the same period a year ago.

RACI scores above 50 indicate an increase in client confidence, while scores below that mark signify that confidence is dropping.

Many advisors offer anecdotal reports about the impact that the economic slowdown has had on retirement planning. In practice, that has meant that many clients have been contributing less to their retirement savings.

"Business has dried up. Everyone is taking a wait-and-see approach," one retirement planner says.

"A lot of local businesses are reducing hours and pay, which has resulted in less contributions to their retirement plans," says another.

Overall dollar contributions posted an all-time low score of 41.2, down 2.9 points from the previous month and off 22.9 points from a year ago, according to the survey.

The story was the same for the element of RACI that looks at total retirement products sold to clients. That indicator notched a score of 37.4, another all-time low and the first time the category dipped below 40. The volume of retirement products sold was down 3.2 points from the previous month and 20 points from the year-earlier period.

"With the tremendously increased volatility of the stock market clients have become much more wary and conservative in their retirement investing," one advisor says.

For many advisors, the fallout from the pandemic has cast them into a role of trying to reassure clients that markets always recover and that their overall retirement plan is sound.

"I held various calls with clients to discuss current market conditions, reminding them that asset allocation we put in place is designed to ride out volatility," one advisor says.

"We're still consistent," another advisor says, "but there is concern and we're doing our best to soothe our client's anxieties."