Nearly half of investors say they would use potential tax savings to increase savings or investments
Higher interest rates could lure some investors away from stocks
Half of retirees wish they had thought about their retirement age sooner
CHARLOTTE, N.C.--(BUSINESS WIRE)--The Wells Fargo/Gallup Investor and Retirement Optimism Index is at a
16-year high following a 30-point increase from fourth-quarter 2016 to
+126 in the first quarter. Investors are now the most optimistic they
have been about the U.S. investment climate since the dot-com boom in
November 2000, when the index was +130.
The survey was conducted by telephone with 1,007 U.S. investors Feb.
10-19, just days after the Dow Jones Industrial Average crossed the
20,000 mark for the first time and as the bull market was reaching its
historic eighth year.
Of the two dimensions of the index, the economic dimension — measuring
investor optimism about economic growth, unemployment, the stock market
and inflation — advanced the most this quarter, rising 20 points to +46.
Most of this came from investors feeling more upbeat about stocks and
economic growth. The personal dimension — measuring investors’ outlook
for their income and investments
— rose 12 points to +80, with slight increases among all components.
In line with their greater confidence, 60% of investors say now is a
good time to invest
in the financial markets. This is up from 52% in late 2016 and is the
highest the Wells Fargo/Gallup investor poll has recorded since early
2011.
Most Investors Not Expecting a Tax Cut
As investors wait for Washington to act on tax reform, more investors
(39%) expect the percentage of income they pay in taxes to go up in the
next few years than expect it to go down (29%). About a third, 31%,
think their tax rate will stay the same.
When asked what they would do with the money if their tax bill were to
be cut by a few thousand dollars, nearly half of investors (47%) say
they would use it to increase their savings or investments. The next
most likely action would be to pay down debt (24%). Using it to make
special purchases or “something else” are tied at 10%. Just 8% say they
would use it for everyday spending.
“Although it’s great to see investors are optimistic about financial
markets and retirement security overall, it’s especially noteworthy that
seven out of 10 would improve their financial
health through either saving and investing or paying down debt as a
result of a potential tax cut,” said Joe Ready, head of Wells Fargo
Institutional Retirement and Trust. “Saving
and investing enough is the number-one factor that will drive
retirement outcomes.”
Higher Interest Rates Could Lure Some Investors away from Stocks
Prior to the Federal Reserve’s recent decision to raise the federal
funds target rate by 25 basis points, investors were evenly divided over
the effect raising interest rates this year would have on the economy: A
third (32%) said higher rates would be good, another third (34%) called
them bad, and another third (32%) said they would not make much
difference.
In terms of how interest rates might affect their own investing
behavior, 37% of investors say higher interest rates would make them
very or somewhat likely to transfer money out of the stock market and
into more conservative investments. This is up from 23% two years ago,
when Gallup last asked this question.
Retired
investors are more positive about the economic impact of higher
interest rates: 37% say they would be good for the economy while 26% say
they would be bad. Non-retired investors tilt the other way, with 37%
believing higher rates would be bad and 31% good. These differences are
consistent with retired investors’ greater reliance on interest income,
compared with non-retired investors’ greater dependence on mortgages and
other loans for which lower rates are preferable.
More Investors Feeling Confident about Their Retirement Security
The new poll finds 78% of investors, up from 69% in the prior
measurement in 2014, feeling confident they will have enough money to
maintain the lifestyle they want throughout retirement, perhaps a
byproduct of the continued bull market. This includes 31% feeling
“highly confident,” up from 26% in 2014. Meanwhile, the percentage not
confident has fallen from 31% to 22%.
One significant factor plays a role in degrees of confidence: having a
written plan.
Forty-three percent of investors with a written plan for retirement say
they are “highly confident” they will have enough to maintain their
lifestyle. Even among investors with similar asset levels, confidence is
higher among those with a written plan. By contrast, just 23% of
investors with no written plan feel highly confident.
Investors are less worried today than three years ago that they will
outlive their savings in retirement: 36% now vs. 46% in 2014 think this
is a real risk. As is typical, a higher percentage of non-retired (39%)
than retired investors (28%) are worried about outliving their savings.
“Although we are experiencing rising account values and optimism, it’s
important not to underestimate the importance of a thoughtful strategy
and a written plan not only for saving
and investing, but also for drawing down funds in retirement given
the complexities of longevity, taxes, and when to begin Social Security
benefits,” said Ready.
Less Than Half of Investors Have a Written Financial Plan
Just 37% of non-retired investors and 40% of retired investors report
that they have a written financial plan. This is similar to what the
investor survey recorded in 2015, indicating investors haven’t made
progress in this important area.
Investors with $100,000 or more in investments are more likely than
those with less than $100,000 invested to have a written plan: 48% vs.
26%. Also married investors (42%) are more likely than unmarried
investors (29%) to have a written plan.
“We’ve seen strong evidence around the power of having a written plan,
wherever you fall on the income spectrum. Whether you use a tool online
to construct a plan or work with an advisor, it drives confidence and
helps inform decisions about budgeting
and saving,” said Ready. “It’s hard to know where you’re going without a
road map.”
Few Investors Have Given Sufficient Thought to Retirement Age
Anchoring one’s financial goals to a specific retirement age is a key
aspect of any well-prepared financial plan. Yet only 28% of non-retired
investors say they have given a lot of thought to the best age to
retire. Another 30% say they have given this a fair amount of thought.
Still, 31% say they have given this only a little thought and 11% admit
they have given a potential retirement age no thought.
Only four in 10 (39%) non-retired investors age 50 and older say they
have given retirement age a lot of thought. This number drops to 20% of
those under 50 who say they have given it a lot of thought.
“The actual age you retire is a really important factor in determining
your monthly income and how long it will last. The sooner you start to
plan your retirement age, the more you can control while you still have
a long runway ahead of you to make adjustments to your strategy,” said
Ready.
Which of seven different steps have non-retired investors taken to
help determine their best retirement age?
-
63% discussed it with friends and family
-
59% estimated their retirement income using different retirement age
scenarios
-
51% manually crunched the numbers
-
50% used online
tools to estimate their retirement income
-
47% talked with a professional financial
advisor about it
-
44% read up on retirement-age considerations in financial publications
-
30% reviewed their options for retirement age on the Social Security
Administration website
A slight majority of non-retired investors (54%) believe that knowing
the age at which they plan to retire would make a difference in their
financial behaviors today; 45% say it would not.
The importance of giving early thought to retirement age is underscored
in the responses of retired investors. More than half of them, 52%, wish
they had started thinking about their retirement age earlier than they
did, whereas 46% say they gave themselves enough time.
About three in 10 (28% of) retired investors were advance planners,
starting to think about their best retirement age before they turned 40.
Another 20% were on track, starting to focus on it in their 40s.
However, more than four in 10 (25%) waited until they were in their 50s
or 60s (16%). Overall, the average age retired investors say they
started thinking seriously about the best age to retire was 44.
For more information, read Five Ways Rising Interest Rates Could
Affect Investors (PDF) from Wells Fargo Investment Institute.
See also
New
study: Planners have the edge in retirement saving
on
Wells Fargo Stories.
About the Wells Fargo/Gallup Investor and Retirement Optimism Index
These findings are part of the Wells Fargo/Gallup Investor and
Retirement Optimism Index, which was conducted Feb. 10-19, 2017, by
telephone. The Index includes 1,007 investors randomly selected from
across the country with a margin of sampling error of +/- four
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 American households have at least $10,000 in
savings and investments. The sample size is comprised of 71%
non-retirees and 29% retirees. Of total respondents, 44% reported annual
income of less than $90,000; 56% reported $90,000 or more. The Wells
Fargo/Gallup Investor and Retirement Index is an enhanced version of
Gallup’s Index of Investor Optimism that provides its historical data.
The median age of the non-retired investor is 46 and the retiree is 69.
The Index 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 negative 64 in February 2009.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $1.9 trillion in assets. Founded in 1852
and headquartered in San Francisco, Wells Fargo provides banking,
insurance, investments, mortgage, and consumer and commercial finance
through more than 8,600 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 269,000 team members, Wells Fargo serves one
in three households in the United States. Wells Fargo & Company was
ranked No. 27 on Fortune’s 2016 rankings of America’s largest
corporations. Wells Fargo’s vision is to satisfy our customers’
financial needs and help them succeed financially. News, insights and
perspectives from Wells Fargo are also available at Wells Fargo Stories.
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.
