Investing October 12, 2022

401(k) Trading in September Reflects Worst Month Since March 2020

Traders favored equities in the beginning of the third quarter as Wall Street posted gaining, but they preferred fixed-income funds in the quarter’s second half as stocks slid.

Reported by

Alight Solutions has published September updates from its 401(k) Index, noting that with stocks posting their worst month since March 2020, “markets experienced a flight to safety among 401(k) plan investors.”

All but two trading days in the month saw net trading activity moving money from equities to fixed income, Alight says. Stable value funds accounted for 80% of net inflows and money market funds received another 15%. Half of net outflows were from target-date funds.

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On average, 0.012% of 401(k) balances were traded daily, compared to an average of 0.009% last month. Investors favored moving assets into fixed-income funds during 19 out of 21 trading days. Trading inflows mainly went to stable value, money market and bond funds, while outflows were primarily from target-date, large U.S. equity, and mid U.S. equity funds, Alight says.

After reflecting market movements and trading activity, average asset allocation in equities decreased from 68.3% in August to 67.2% in September. Additionally, new contributions to equities decreased from 68.5% in August to 68% in September.

In its observations for the third quarter, Alight notes that see-sawing stock prices had 401(k) plan investors trading in starts and stops. As Wall Street was posting gains at the beginning of the quarter, trading was light and saw money moving to equities. However, as stocks slid in the second half, trading activity increased, and money flowed to fixed income.

There were five above-normal trading days in the quarter, down from 17 above-normal days seen in the second quarter. Net transfers for the quarter were 0.24% of balances. Alight’s data shows that 42 out of 64 trading days in the first quarter saw net trading dollars moving from equities to fixed income.

According to the index, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.

Data and Research October 11, 2022

New Survey Shows Inflation and Inequality Are Negatively Affecting Seniors’ Retirement

The survey demonstrated the degree to which black and Hispanic retirees tend to have less saved for retirement than white retirees, as well as those who are unmarried or have low financial knowledge.

Reported by

A survey published by the Employee Benefit Research Institute shows inflation and inequality are hurting seniors’ retirement.

“The 2022 Spending in Retirement Survey reveals that certain measures of retiree wellbeing have stagnated or declined since the pandemic…More retirees say that spending has increased and is higher than they can afford,” explained Bridget Bearden, research and development strategist at EBRI in a statement.

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Overall, more than half of those surveyed reported retiring earlier than expected. The most common reasons for retirement were the ability to retire from an affordability standpoint (29%) and having a health problem or disability not related to COVID-19 (21 %).

The survey found that 27% of retirees surveyed are spending more than they can afford in 2022, up from 17% of those surveyed in 2020. Those surveyed reported that 55% of their income goes to housing (30%) and food (25%).

The share of retirees surveyed reporting that they have reduced discretionary spending since the pandemic was down to 43% in 2022, compared to 54% in 2022. The share reporting they have reduced essential spending remained unchanged in 2022 from the 18% reported in 2020.

Among those who decreased either their essential or discretionary spending since the pandemic, the most common reason cited by roughly 90% of retirees was concern about inflation.

“Inflation appears to be a major driver of the misalignment between expectations and reality, a double-edged sword that undoubtedly increases actual spending but also reduces spending, likely out of a desire to protect future purchasing power,” said Bearden.

It is not clear if the respondents answering that inflation caused them to spend less might actually mean “consume” less as a result of higher prices, since increasing commodity prices would not normally lead to decreased net spending. Bearden explained that they did not ask the “parallel question” to those who increased their spending, and would expect their explanation for increased spending to be inflation also.

Nearly one third, (32%) of the 2022 sample reported working to some degree after retirement. The leading reasons for continuing to work past retirement were to have extra resources for an unexpected expense, greater discretionary spending, opportunities to socialize, and a sense that work is “rewarding”.

Among other findings, EBRI reported that on a scale of one to 10, on average, retirees rate their satisfaction in retirement as 7.0 in 2022, down from 7.4 in 2020.

The researchers surveyed 1,998 retirees between the ages of 62 and 75, with an average age of 66. To qualify as “retired” for the purposes of the survey, the respondent had to be either retired and no longer working, retired and employed part-time, or fully employed but considers themselves retired from a primary career.

This sample was weighted by gender, race, and income. The average net assets of those sampled was $532,000, and the median was $146,000. 50% of the sample reported having a college degree, making it notably more educated than the general public.

56% reported being married or living with a partner, and the other 44% reported being widowed, divorced, or separated.

Previous research from EBRI shows that there is a significant retirement confidence gap between married and unmarried women. In the current study, the author noted that unmarried people are less likely to have access to a financial advisor and are more likely to consider themselves unprepared for the “possibility of needing monthly income through age 90”.

The study also highlights deep racial inequality in retirement preparation. 46% of black respondents and 43% of Hispanic respondents reported less than $25,000, compared to 22% of the total sample. Black and Hispanic respondents were also less likely than average to have three months of retirement savings. Black retirees were also more likely to report that they retired later than they anticipated.

Despite increased inflation, the 2022 sample does not report greater debt anxiety than the 2020 sample. Both samples reported a combined 11% who said their debt was either “crushing” or “unmanageable”. However, 27% of the 2022 sample said they are spending either “much higher” or “a little higher” than they can afford, compared to 17% in 2020.

Fewer respondents reported spending less since the pandemic in 2022 than 2020. 54% in 2020 said their spending decreased “somewhat” or “significantly” compared to 43% in 2022 since the pandemic. Those who decreased spending in 2022 cited “concern about inflation” as the leading reason, with 55% describing it as a “major reason”.

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