Wells Fargo Study: After Eight-Year Bull Market, Most Working Americans Say the Stock Market is the ‘Best Place to Grow Retirement Savings’

America is eight years into one of the longest-running bull markets, and the percentage of working Americans who say the U.S. stock market is now a good place to invest for retirement has increased to 65%, up from 45% a year earlier. Another sign of increasing optimism, and perhaps a reflection of increased confidence in the stock market*: The percentage of workers who say they will “have enough savings to live on comfortably” throughout retirement increased to 62%, compared to 52% in 2016. In addition, 46% say they will need to work until at least age 70, which is down from 50% last year.

In spite of increased optimism, a sizeable portion (38%) of workers still say they do not think they will reach their savings targets, and 48% say they believe their “standard of living will fall.” One of the greatest hurdles appears to be healthcare costs, with 61% of workers saying healthcare costs prevent them from saving more for retirement, and half of retirees spending more than they expected on healthcare.

On behalf of Wells Fargo, Harris Poll conducted a total of 1,259 telephone interviews between July 6 and Aug. 8, 2017, with 1,006 workers age 30 or older and with 253 retirees.

*Workers should understand the risks associated with investing in the stock market, such as market fluctuations, before investing. While stocks have historically offered long-term growth potential, stocks may fluctuate more and provide less current income than other investments.

“Consider the power of compounded savings and market returns for a participant with a $50,000 401(k) account balance in the beginning of 2009: That balance would be $180,000 by September of this year*. Had investors allowed the correction to scare them off, they would have missed out on that growth opportunity,” said Joe Ready, head of Wells Fargo Institutional Retirement and Trust.

“That said, it’s also a good reminder to check up on your portfolio and rebalance it to align with your risk appetite,” he said. “Asset allocation** is one of the keys to retirement outcomes, so make sure allocation isn’t overly aggressive because of rising equity markets.”

*For illustrative purposes only and is not indicative of any investment. This example assumes a deferral rate of 7.4% (current average among 401(k) participants we service), the current median participant salary of $45,000, 75% of the investment allocation in the stock market, the rest in bonds/stable value/money market. Example does not include an employer match, uses a 401(k) account balance of $50,000 as of 1/1/2009 and calculates assumptions through 9/30/2017. Estimates are based on the assumptions noted, do not guarantee or imply a projection of actual results, and do not include the effect of fees or taxes. Wells Fargo cannot guarantee results under any savings or investment program and cannot guarantee that you will meet your retirement savings goals. About the data: Stocks represented by the Standard & Poor’s 500, which is an unmanaged group of securities and considered to be representative of the U.S. stock market in general. Bonds and stable value/money market represented by the Citigroup three-month Treasury Bill Index, which measures monthly return equivalents of yield averages that are not marked to market and are averaged over the last three months. You cannot directly invest in an index. Past performance is not a guarantee of future results.

**Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

Healthcare: The big wild card

Healthcare costs and the potential for catastrophic illness are two of the biggest worries U.S. workers have about retirement, the survey found. The majority (61%) of workers say higher healthcare costs prevent them from saving more for retirement.

Another indication of uncertainty about healthcare costs: Asked to choose the greatest threat to their current retirement savings, four out of 10 workers age 40 and older cite rising healthcare costs or catastrophic illness; four out of 10 workers in their 30s cite losing their job or not saving enough as the biggest threat. Also, those in the sandwich generation ─ people who are responsible for taking care of their aging parents as well as their own children ─ are much more likely to cite rising healthcare costs than those who did not have these responsibilities (30% versus 18%). Sandwich-generation members are also more likely to cite higher health costs as a reason they don’t save more for retirement (71% vs. 56% of non-sandwich-generation workers). The sandwich generation comprises 36% of workers overall (43% of women and 30% of men).

Underscoring the healthcare factor, half of retirees (50%) indicate they’re spending more than they expected on healthcare; female retirees are nearly twice as likely to state this as male retirees (60% versus 36%).

Saving for retirement in America

One in four (25%) working Americans are not contributing to retirement savings through things like a 401(k) plan, IRA, or other dedicated retirement savings plan.

Additional retirement saving trends:

• Not surprisingly, workers who are consistent savers have saved much more for retirement than those who are not consistent savers ($200,000 vs. $50,000 median). Among retirees, the gap is even larger ($400,000 vs. $50,000 median). Consistent savers are defined as those who have consistently saved for retirement since the beginning of their careers.
• While only four in 10 workers (42%) are consistent savers, among workers who are saving, the average age at which they began saving for retirement is lower for younger workers than for older workers.

Age group			30-39			40-49			50-59			60+
Average age started saving for retirement			25			28			31			36

• The average starting age is lower among consistent savers than among those who are not consistent (25 versus 33), giving consistent savers an eight-year head start.

• After paying essential monthly expenses, about a third of workers (34%) identify saving for retirement as their biggest financial priority; however, the figure is 50% among workers age 55 and older.
• The percentage of workers who say they plan to rely on Social Security appears to be less today than previously, though there is a split between those who save consistently and those who don’t. Overall, three in 10 (30%) workers plan to rely heavily on Social Security during retirement compared to 51% of retirees. Notably, reliance on Social Security is lower among those who are consistent savers versus those who are not (23% versus 35%).
• When asked about sources of funding for the largest part of their retirement, the leader is 401(k) savings (35%), followed by Social Security (17%) and pensions (17%). Among workers who contribute to a 401(k) plan, more than half (53%) say it will be the primary source of funding retirement.

“People understand the importance of saving for retirement,” said Ready. “Time is the biggest asset for retirement savers, so it’s good to see consistent savers getting a head start. However, for the 50-somethings in this survey, it’s getting harder to bend the curve as retirement closes in. This is why it’s important for those who are playing catch-up to understand what they can do to optimize their retirement savings by modeling when they take Social Security, the age they will retire, and how much they can afford to withdraw each month. All of these can have a meaningful impact.”

Markets, policy, and unexpected events will be ebb and flow over time – focus on what you can control

Half (49%) of workers have actively considered developing a budget for living in retirement. In addition, the majority of workers have actively considered the following factors as part of their retirement planning process:

• The age at which they can afford to retire (65%)
• Steady monthly income from their investments (56%)
• Healthcare expenses (55%)
• The age by which they should start taking Social Security to maximize their benefits (53%)

“Even 45% of the 40-somethings in our surveys had actively considered a budget for living in retirement. It’s encouraging to see this group already embracing that mindset. It’s a critical part of overall retirement planning and confidence,” said Ready.

However, although those who have actively considered developing a budget increases with age, only 63% of workers 60 years and older have done so. For these workers age 60 or older who are closest to retirement — and should have more concrete plans in place — the following factors have not actively been considered as part of their retirement planning process:

• Steady monthly income from their investments (36%)
• A budget for living in retirement (35%)
• Healthcare expenses (23%)
• The age at which they can afford to retire (22%)
• The age by which they should start taking Social Security to maximize their benefits (13%)

“Many of these elements of planning are highly controllable by the individual and can significantly impact your standard of living in retirement,” said Ready. “Developing a budget can help determine if your savings plan is on track to meet your spending needs. Determining retirement age and when to take Social Security are scenarios you can model to optimize your projected retirement income.”

When asked where they need the most help in planning for retirement, a plurality of workers says healthcare expenses (29%) followed by developing a budget for living in retirement (22%), the age by which they should start taking Social Security to maximize their benefits (15%), deciding at what age they can afford to retire (14%) and developing monthly income from their investments (11%).

Lessons learned from retirees

Examining what is working for current retirees can be a powerful approach to retirement planning; in fact, 65% of Americans say their retirement planning process focuses primarily on avoiding the mistakes they have seen others make.

Among current retirees, 36% say their standard of living went down once they retired, and nearly four in 10 (38%) say they were not financially prepared for retirement; more women (44%) say this than men (31%). When it comes to the retirement planning process for retirees, 67% say they considered the age to start taking Social Security to maximize benefits, and 63% developed a budget for living in retirement.

In all, 43% of workers plan to save for retirement later to make up for not saving enough; more women (49%) say this than men (37%). Not saving enough now could be risky, given the fact that half (51%) of retirees retired earlier than they had planned; this may complicate the plan for many by trying to make up for lost time.

“Traditionally, women live longer than men — another important dimension to consider. Thinking about ways to hedge this longevity is an important consideration in retirement planning,” Ready said.

Crystal ball

These and other concerns are reflected in how U.S. workers view their prospects for a comfortable retirement. Older workers are somewhat more optimistic. Two-thirds (66%) of workers 55 and older say they will have enough savings to live comfortably throughout their retirement. Nearly four in 10 (38%) of workers do not think it will be possible to reach their retirement saving goal.

On average, workers estimate they need a median of $750,000 to help support them through retirement. Almost a quarter (23%) aren’t sure of a total amount to save or can’t even estimate. While older workers have saved more and have made more progress towards their retirement savings goal, even workers in their 60s or older have only saved 42% of the total amount they estimate they’ll need for retirement (based on median comparisons).

A majority (65%) of American workers give consideration to the amount of taxes they will have to pay when thinking about their retirement budget. Also among workers, 59% say their income taxes will be lower in retirement, 35% say they will be higher, and 6% aren’t sure.

The benefits of the 401(k)

When it comes to government priorities, most workers (63%) agree that developing a policy to provide access to retirement and savings plans for all Americans needs to be a priority for government officials. As the issue of access to savings plans enters the retirement policy debate, it is worth noting that most workers (64%) in this study have a 401(k) plan or equivalent available from their employer, leaving the other 36% on their own to proactively contribute to retirement savings plans outside of work.

• 89% of workers who have access to savings plans indicate they wouldn’t have saved as much for retirement if they did not have a 401(k) plan.
• Among those with access to a 401(k), 88% are contributing; 87% of contributors say they feel more secure about their retirement because they are contributing to a 401(k) plan.
• Those with access to a 401(k) plan are more likely to be consistent savers than those who do not have access (48% versus 33%).
• People with 401(k) plans, on average, started saving for retirement earlier than people without access (28 versus 31).
• Consistent savers started saving at a mean age of 25, compared to 33 for those who have not saved consistently.
• Workers age 50 and older who have access to a 401(k) plan have saved six times more for retirement than those without access ($300,000 compared to $50,000 median).

“It is clear that access to a systematic savings and investing vehicle is a potential barrier to retirement security for a third of Americans. There are a number of ideas for solving this problem, and some of them involve building on an existing mechanism we know can be very effective ─ the 401(k) plan,” said Ready.

Despite the success of 401(k) plans in making retirement planning easier for working Americans, many want help making investment choices. Specifically, 56% of workers who have a 401(k) plan available would like more help with their plans to make sure they’re making the best choices for their retirement. This is even more likely among younger workers in their 30s (67%).

Where does the money go when it’s time to leave the company?

When respondents were asked what they would do with their retirement savings if they changed jobs, 63% say they would keep their money in a 401(k) plan (44% would roll over into a similar plan with their new employer, and 19% would leave their money in their prior 401(k) plan). Three in 10 would roll their 401(k) plan into an IRA (31%)*.

“The great news here is that the majority of workers would keep their money in a tax-deferred vehicle upon changing jobs; this tells us they know better than to just cash out, which would have significant tax implications,” said Ready.

Upon retirement, 81% of workers with access to a 401(k) plan would prefer to stay in their plans if they could just make withdrawals from it during retirement.

“Continuing to use the 401(k) in retirement can be another option, and it doesn’t surprise me that people see the value this type of plan delivers ─ access to institutionally priced investments, independent fiduciary oversight, and tools and education that are designed to help them achieve their goals. As a retirement plan industry, we’ve reached an inflection point and should take this as a call to do even more to help people not just to the point of retirement, but also through retirement.”

*When considering rolling over your qualified retirement plan (QRP) assets, key factors that should be considered and compared between QRPs and the IRAs include fees and expenses, services offered, investment options, when penalty-free withdrawals are available, treatment of employer stock, when required minimum distribution begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.

See also:

2017 Wells Fargo Retirement Study white paper

4 questions to ask in every retirement plan

About the survey

On behalf of Wells Fargo, Harris Poll conducted 1,259 telephone interviews of 1,006 working Americans 30 or older and 253 retired Americans, surveying attitudes and behaviors around planning, saving and investing for retirement. The survey was conducted from July 6 – Aug. 8, 2017. Working Americans are age 30 or older and working full-time (or at least 20 hours if they are working part-time) or are self-employed. Retired Americans self-identified as retired regardless of age. Both working and retired Americans are the primary or joint financial decision-maker for their household. Data were weighted as needed to represent the population of those meeting the qualification criteria. Figures for education, age, gender, race, ethnicity, region, household income, investable assets, and number of adults in the household were weighted where necessary to bring them in line with their actual proportions in the population.

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.

About Harris Poll

Over the last five decades, Harris Polls have become media staples. With comprehensive experience and precise technique in public opinion polling, along with a proven track record of uncovering consumers’ motivations and behaviors, Harris Poll has gained strong brand recognition around the world. Contact us for more information.

Wells Fargo Institutional Retirement & Trust is a business unit of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. This information and any information provided by employees and representatives of Wells Fargo Bank, N.A. and its affiliates is intended to constitute investment education under U.S. Department of Labor guidance and does not constitute “investment advice” under the Employee Retirement Income Security Act of 1974. Neither Wells Fargo nor any of its affiliates, including employees, and representatives, may provide “investment advice” to any participant or beneficiary regarding the investment of assets in your employer-sponsored retirement plan. Please contact an investment, financial, tax, or legal advisor regarding your specific situation. The information shown is not intended to provide any suggestion that you engage in or refrain from taking a particular course of action.