I had a similar experience last week and spent over an hour with customer support. I was fortunate to get a rep who did not force me to try things I had already tried. After checking off a few boxes in her checklist she passed me on to her supervisor who eventually fixed the problem. The breakthrough seemed to occur when she asked me to forget the wifi network I was attached to on my iPhone and rejoin it again.
In thinking back through that experience I find myself wondering if my particular home network setup was contributing to the problem and possibly clashing with iOS 14's new private address feature. I turned that off when I updated my phone and watch awhile back but then forgot about it, and it seems that every restart of my phone (and/or watch) turned it back on, possibly impacting the whole update process.