Investor optimism at 17-year high; nearly half of non-retired investors don’t have retirement savings “number”
The Wells Fargo/Gallup Investor and Retirement Optimism Index held
steady in the fourth quarter at +140, statistically unchanged from +138
in the third quarter. The index is near its September 2000 high of +147.
Three-quarters of non-retired investors in the survey have a 401(k)
plan, and more than half – 57 percent – say the most valued feature of
their plan is the “match contribution from their employer.” The next
most valued feature is the tax deferral on the money they contribute,
which was noted by 33 percent. Forty-six percent say they would “save
less” or “stop saving” in their 401(k) if the tax deferred status of
their plan was taken away, whereas 42 percent say they would “save the
same amount.” The survey was conducted by telephone with 1,015 U.S.
investors Nov. 1–5, 2017, 67 percent of whom are non-retired and 33
percent of whom are retired.
“The 401(k) plan has evolved into the greatest savings and investment
vehicle that Americans have today to steadily build a retirement nest
egg. Pre-tax savings has a direct impact on the level of savings that
people achieve, and we have to recognize this as the country
contemplates changes in tax policy. The employer-sponsored 401(k) is
critical to allowing working people to save and invest over time,” said
Fredrik Axsater, executive vice president and head of Strategic Business
Segments at Wells Fargo Asset Management.
Investors are generally optimistic about all seven aspects of the index,
with especially strong optimism about economic growth, stock market
performance and employment. Retired investors are more optimistic than
non-retired, with an optimism index score of +151 versus +135 for
non-retired investors.
According to the poll, 72 percent of investors are “somewhat” or “very
optimistic” that they will be able to achieve their investment goals
over the next five years, up from 52 percent of investors during the
same quarter five years ago. Investor optimism generally tracks with
market gains, as the S&P has gained nearly 100 percent since the fourth
quarter of 2012.
Investors value guaranteed income stream in retirement but are
unsure how to achieve it
Nearly all non-retired investors — 98 percent — “strongly agree” or
“somewhat agree” that “it is important to have a guaranteed income
stream in retirement, in addition to Social Security,” and yet there is
confusion about how to get this additional income stream. Six in ten (61
percent) either “strongly agree” or “somewhat agree” that they want a
guaranteed monthly income stream that lasts as long as they need it,
even if that means “giving up access to some of their money.” But at the
same time, 75 percent of non-retired investors either “strongly agree”
or “somewhat agree” that they want the freedom to spend their money as
they want in retirement, even if that means they may run out of money
“too soon.”
Investors also are unsure about what products are available to provide
them with a guaranteed income throughout retirement: 49 percent
“strongly agree” or “somewhat agree” that they are unsure about these
types of products.
The retirement sieve
More than half of non-retired investors (53 percent) have a savings
“number” in mind for retirement, but 47 percent do not. Non-retired
investors with a specific number in mind say $1 million (median) is the
right objective, although 29 percent say $500,000 or less. Forty-one
percent of non-retired investors have a specific savings number in mind
and can also estimate what that sum will generate annually in
retirement, but many of these estimates are unrealistic. Nineteen
percent of non-retired investors have a savings goal in mind and a
somewhat realistic assumption of withdrawing up 1 to 5 percent of their
savings every year throughout retirement. The rest are unsure about what
their annual draw down would be, or they estimate a number that amounts
to more than a 5 percent annual withdrawal rate.
To put this in perspective, Wells Fargo Asset Management estimates that
even with a five percent inflation-adjusted annual distribution there is
a 20–30 percent risk of running out of money in retirement, assuming
they are invested in a well-diversified investment portfolio.
Another point in the data: Investors who say they need to save a target
of $1 million or more expect to draw 5 percent per year, on average,
while those who say they need to save less than $1 million expect to
draw an average of 7 percent per year. The latter group is aiming to
save less but to withdraw a larger proportion per year in retirement.
“Setting a retirement savings goal — even if it’s an estimate — is a
critical step in the process of managing one’s retirement outcome, but
it’s hard to do. Further, it becomes even harder to try to estimate what
one will harvest from savings each year of living in retirement. This is
where our industry must come up with solutions that allow people to
envision their savings needs and what that translates to in terms of
annual draw down in retirement,” said Axsater.
Some interest in “social impact investing,” especially among female
and younger investors
The survey asked investors about their views on “social impact
investing,” which was defined for respondents as “choosing investments
based on the effect they have on things like the environment, human
rights, diversity and other social values, in addition to investment
returns.” Female investors express more interest in investing in social
impact investments, with 39 percent “very interested” or “somewhat
interested” as compared with 26 percent of male investors. Younger
investors appear more interested in this type of investing, with 39
percent of investors aged 18–49, “very interested” or “somewhat
interested,” compared with 29 percent of investors age 50 and older.
There is encouraging news for employers who want to offer social impact
investments to employees as part of their 401(k) portfolio options.
Forty-four percent of non-retired investors with a 401(k) say they would
“definitely” or “probably” put money in social impact investments if
they had the option in their plan. Moreover, 34 percent of non-retired
investors with a 401(k) say that including social impact investments as
an option in a work-place retirement plan would make them feel “more
positively” toward their employer. Of those non-retired investors who
would feel more favorably about their employer, 53 percent are women and
47 percent are men. Only 6 percent of investors would feel “more
negatively” toward their employer if these investments were offered.
Although only 10 percent of investors say they currently have money in
social impact investments, 33 percent of investors say they are “very
interested” or “somewhat interested” in social impact investments.
Investors are unclear about the performance of social impact funds in
comparison to the market as a whole. Although 37 percent say social
impact investing performs the same as the market average, 33 percent say
these investments perform worse, and 28 percent are unsure. Just 2
percent say these types of investments perform better. More men (39
percent) than women (27 percent) say social impact investments will
perform “worse” than the market average.
In the Wells Fargo/Gallup survey, investors were asked to rate their
interest in each of three specific social impact themes. Seventy-eight
percent of investors say they are “very interested” or “somewhat
interested” in protecting the environment, 76 percent are “very
interested” or “somewhat interested” in doing social good — such
as promoting diversity and improving education — and 74 percent
are “very interested” or “somewhat interested” in focusing on
responsible corporate governance, including “ethics” and “behaviors.”
Investment diversification
When asked their views on the riskiness of investing internationally, 57
percent say making international investments is “a little” or “a lot”
riskier than U.S. investments. A quarter of investors (25 percent) see
international investing as equal in risk to domestic investments, and 10
percent say international investing is “a little” or “a lot” safer than
domestic investments.
Investors who view international investing as “riskier” than domestic
investing tend to be older: 64 percent of investors older than age 50
view international investments as riskier, versus 48 percent of those
18–49. Fifty-three percent of investors who say investing abroad is more
risky say it is because of the “potential for political instability” in
these countries.
"The perception that international investing poses a higher risk is
interesting, and it seems to be age-related, with older investors more
likely to cite political risk as a factor than younger investors.
Political risk exists in foreign countries, as well as the U.S.,
presenting a strong case for all investors to have a well-diversified,
global portfolio,” said Axsater.
According to the Wells
Fargo Investment Institute outlook for 2018, some international
equity markets look more attractive than domestic markets because the
U.S. market is later in its growth cycle compared with international
economies and markets.
About the Wells Fargo/Gallup Investor and Retirement Optimism Index
These findings are part of the Wells Fargo/Gallup Investor and
Retirement Optimism Index, conducted Nov. 1-5, by telephone. The index
includes 1,015 investors, aged 18 and older, randomly selected from
across the U.S. with a margin of sampling error of +/- 4 percentage
points. For this study, the American investor is defined as an adult in
a household with total savings and investments of $10,000 or more. About
two in five U.S. households have at least $10,000 in savings and
investments. The sample size consists of 67% non-retirees and 33%
retirees. Of total respondents, 41% reported annual incomes of less than
$90,000; 59% reported $90,000 or more. The Wells Fargo/Gallup Investor
and Retirement Index is an enhanced version of Gallup’s Index of
Investor Optimism, which provides the historical trend data. The median
age of the non-retired investor is 47 and the retiree is 68.
The Index of Investor Optimism had a baseline score of 124 when it was
established in October 1996. It peaked at +178 in January 2000, at the
height of the dot-com boom, and hit a low of -64 in February 2009.
About Wells Fargo Asset Management
Wells Fargo Asset Management, a division of Wells Fargo Wealth and
Investment Management, strives to help clients achieve their financial
goals through top-tier investment options managed by specialized
investment teams that are supported by independent risk management and
backed by superior, collaborative service. With more than $496 billion
in assets under management,* Wells Fargo Asset Management has 29
autonomous investment teams with specialized expertise and proven
processes; more than 500 investment professionals; and a global reach
with offices and clients around the world.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $1.9 trillion in assets. Wells Fargo’s
vision is to satisfy our customers’ financial needs and help them
succeed financially. Founded in 1852 and headquartered in San Francisco,
Wells Fargo provides banking, insurance, investments, mortgage, and
consumer and commercial finance through more than 8,400 locations,
13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has
offices in 42 countries and territories to support customers who conduct
business in the global economy. With approximately 268,000 team members,
Wells Fargo serves one in three households in the United States. Wells
Fargo & Company was ranked No. 25 on Fortune’s 2017 rankings of
America’s largest corporations. News, insights and perspectives from
Wells Fargo are also available at Wells
Fargo Stories.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset
management businesses of Wells Fargo & Company. Wells Fargo Funds
Management, LLC, a wholly owned subsidiary of Wells Fargo & Company,
provides investment advisory and administrative services for Wells Fargo
Funds. Other affiliates of Wells Fargo & Company provide subadvisory and
other services for the funds. The funds are distributed by Wells
Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells
Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo
Funds Management holds fund shareholder accounts or assets. This
material is for general informational and educational purposes only and
is NOT intended to provide investment advice or a recommendation of any
kind—including a recommendation for any specific investment, strategy,
or plan. 307846 12-17
About Gallup
Gallup delivers analytics and advice to help leaders and organizations
solve their most pressing problems. Combining more
than 80 years of experience with its global reach, Gallup knows more
about the attitudes and behaviors of employees, customers, students and
citizens than any other organization in the world.
NOT FDIC INSURED - NO BANK GUARANTEE-MAY LOSE VALUE