Originally posted on WellsFargo.com
The Wells Fargo/Gallup Investor and Retirement Optimism Index dropped to 85 for second quarter 2019, down 18 points from 103 a year ago. Investors are less optimistic than a year ago about maintaining their household income and reaching their 12-month and five-year investing goals.
The Wells Fargo/Gallup Investor and Retirement Optimism Index measures U.S. investor confidence in the investing climate, based on a representative sample of U.S. adults with $10,000 or more invested in stocks, bonds or mutual funds. More than half of investors — 61% — say the stock market’s recent performance makes them concerned that the market is “peaking.” The latest poll was conducted May 6–12, 2019.
More than half of investors (61%) describe the economy as “booming” or “solid,” but there are concerns that a recession is nearing: 51% of investors say a recession will begin either later in 2019 (11%) or in 2020 (40%). However, a clear majority — 66% — say they are “prepared” for how they will handle their investments in the event of a recession. This includes 72% of retirees and 64% of nonretirees.
“It is good to see that two-thirds of investors feel they are prepared to handle their investments during a recession,” said Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute. “While we do not see a recession in the near term, in many ways we are still recovering from the last one — which left a deep scar on many investors. This sense of preparedness is a positive sign.”
Investors plan more for retirement than their working years
The study found that three in four investors (75%) say they have put “a lot” or “a fair amount” of thought into achieving their financial, family and lifestyle goals in retirement. In contrast, fewer than half of investors — 46% — say they have given the same thought to planning their life in their working years.
“It’s fascinating that investors have given so much more thought and planning to their retirement years than to their working years. Those working years are the ones when people are making lots of decisions about work, raising families and buying homes, and planning could be helpful,” said McMillion.
The poll found a gender gap in planning the working years: 52% of men versus 38% of women say they have given “a lot” or “a fair amount” of thought since the start of their working years to how they would achieve their work, financial, family and lifestyle goals during this phase of life. By contrast, there is no significant difference between men and women in planning for retirement, with 77% of men and 73% of women giving it considerable thought.
Greatest retirement curveball? Healthcare looms large
The poll asked nonretirees which of five possible factors causes them the most difficulty when planning for retirement. Not knowing how much money they will need to maintain their standard of living (29%) ranks No. 1, nearly a tie with No. 2 healthcare (26%). Not knowing how long they will live (20%) came in third.
Twenty-one percent of investors say they are “highly confident” they will have enough money to maintain their preferred lifestyle in retirement. Just over half, 53%, are “somewhat confident” about their retirement, and 26% are “not too confident” or “not confident at all.”
Notably, healthcare is investors’ top issue when looking ahead to the 2020 elections, with 76% saying the candidates’ positions on this topic will be “very important” to their vote. Social Security (70%) and the economy (69%) are close second and third election issues.
“Healthcare is an unknown cost for many, and it becomes even more of a concern as people age and try to factor those costs into retirement planning,” said McMillion.
How investors use “catch up” strategies to enhance retirement savings
The most common step non-retired investors say they are doing to catch up on their retirement savings is paying off high-interest debt (80%). A little more than half of investors (54%) say they are increasing the amount they are saving, roughly tied with deciding to retire later than their preferred retirement age (52%). Less common actions are cutting way back on daily expenses (38%), making catch-up contributions (32%), downsizing their home (13%) and working a second job (12%).
Four in five non-retired investors report having a 401(k)-type retirement savings plan. However, when this group is asked how much they plan to save this year, they fall far short in deferring the allowable maximum savings. Across all age groups, 18% of investors surveyed plan to save the maximum allowed savings for their age. On average, investors under 50 are planning to save $8,969 in their 401(k) this year, just under half the maximum allowable amount of $19,000. Investors who are 50 and older are planning to save an average $10,761 in their 401(k) this year, less than half the maximum allowable contribution of $25,000.
Fewer than one in five investors under age 50 (19%) and 16% of investors 50 and older say they are planning to save the maximum allowable amount for their age group this year.
Investors say now is a good time to invest, but not to spend
Nearly two in three investors (65%) say that now is a good time to invest in the financial markets, consistent with the 64% to 68% range seen in the poll since the start of 2018. About half (53%) say the rise in markets makes them feel more confident about their retirement savings. Yet fewer than half report that the rise in markets makes them feel more confident about spending more money (44%) or making major purchases (40%).
Investors as a whole report having an average 44% of their savings invested in stocks. When asked to think ahead to their portfolio at age 80, investors estimate they will have just 26% invested in stocks at that time. Notably, there is virtually no difference between the estimates of current stock exposure given by retirees and nonretirees. Retirees estimate they currently have 46% of their savings invested in stocks and nonretirees estimate they have 44%. However, when looking ahead to age 80 or older, retirees estimate they will have 33% of their savings in stocks at age 80, and nonretirees estimate they will have 23%.
“Historically, investors have been advised to shift into a more conservative portfolio as they move into retirement because they have less time to recover from market corrections and are often withdrawing funds for living expenses,” noted McMillion. “With very low interest rates expected to persist in the bond market, it may be appropriate for retirees to maintain higher allocations to equities, but they need to assess the increased volatility risk that comes with holding equities. Meanwhile, nonretirees may not be taking full advantage of the growth potential of equities over time and may need to increase their exposure.”
Recession fears: Who is prepared, and what actions are they taking?
About half of investors (51%) predict that the next U.S. recession will occur either sometime later this year or next year. Two-thirds of investors say they feel prepared for how they would handle their investments in the event of a recession, but there are differences by subgroup:
- 77% of men versus 55% of women feel prepared.
- 72% of retirees versus 64% of nonretirees feel prepared.
- 74% of higher asset ($100,000+) investors feel prepared versus 57% of lower-asset investors (less than $100,000 invested).
Nonretirees are not taking major precautions to guard against a future recession, as only 18% plan to delay a home purchase and 23% plan to delay retirement. But slight majorities say they are preparing by taking actions that are good financial practices at any time. These include increasing their savings (59%) and cutting back on spending (52%). Some are reducing their stock holdings (22%) and increasing their bonds (15%), while about half say they are diversifying their portfolio more and half say they are increasing their cash holdings.
For retirement insights for every generation, view Wells Fargo’s digital report Reimagining Retirement.