Participants June 6, 2017

Americans Pessimistic About Retirement Saving

Main reasons why participants are concerned about retirement saving include fear of looming health care costs and depleting their savings in retirement.

 

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Even though the U.S. is experiencing a nearly eight-year strong bull market, which has seen financial markets climb in value by more than 300%, a large portion of investors worry about saving enough for retirement. That’s the conclusion drawn from a recent survey by Spectrem Group.

The firm’s study “Financial Behaviors and the Participant’s Mindset” found that 43% of respondents say they expect to have less than $500,000 saved for retirement. Only 20% think they’ll put away $1 million to $2 million, and just 5% think they’ll have more than $5 million saved.

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The majority of Millennials, however, are confident about their potential nest eggs. The survey found that more than half (60%) anticipate saving between $500,000 and $1 million.

Still, some research suggests that Millennials are overly hopeful about retirement. On the other hand, those closest to retirement appear the least confident about generating enough income in that phase. According to the report, more than half (56%) of Baby Boomers expect to have less than $500,000 in retirement. When adding in World War II-era investors, the figure jumps to 91%.

The reasons why participants are generally pessimistic about retirement savings are varied. Such reasons range from concerns over short-term market volatility and current tax pressure to increasing health care costs. The firm found that 71% of respondents believe they pay too much in taxes. And while 75% think wealthier citizens should have the larger tax burden, 46% say they would like to see a flat tax rate levied on all citizens.

Managing health care costs in the future, however, seems to be the biggest obstacle to retirement saving. More than half (74%) believe this is a major issue.

To address that issue, plan sponsors and providers have been turning to integrating retirement planning and health care planning by utilizing different resources such as health savings accounts (HSAs).

Plan participants concerned about health care costs also worry about depleting their retirement savings. Less than half (48%) worry about paying too much in taxes or spending too much once they retire, the report says.

Information about downloading the full report can be found on Spectrem.com.

Data and Research June 6, 2017

Professionally Managed Portfolios to Continue Rising

Plus, the use of automatic features has increased over the past 10 years, a Vanguard study reports.
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Vanguard expects that the use of professionally managed portfolios, which are currently employed by more than half of its participants today, will reach 75% by 2021. Further, the skyrocketing use of automatic features in the past 10 years has meaningfully benefited participation rates, savings rates and balanced asset allocation strategies, according to Vanguard’s report “How America Saves 2017.” Ninety-seven percent of participants in its plans received a company match in 2016, Vanguard found.

“DC [defined contribution] plans have evolved to become a pillar of retirement savings for millions of Americans, and plan sponsors have responded by building plans that encourage employees to participate, save more and invest appropriately,” says Martha King, managing director of Vanguard’s Institutional Investor Group.

Nearly half of Vanguard’s plans automatically enroll their workers—a 300% increase in the past 10 years. Plans that automatically enroll participants report a 90% participation rate. Among plans that automatically enroll and leave that decision up to the participant, 79% of workers participate in their 401(k) plan, a 16% increase from 2007.

In addition, Vanguard plans that automatically enroll participants at a 4% or higher deferral rate have doubled to 48%, and plans that have an automatic deferral rate of 6% or higher have tripled to 20%. Ninety-seven percent of plans that automatically enroll participants use a target-date fund (TDF) as the qualified default investment alternative (QDIA).

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Moreover, the percentage of Vanguard participants invested exclusively in equities dropped from 17% in 2007 to 6% in 2016. Less than 10% of participants made a change to their portfolio last year.

The full, 110-page “How America Saves 2017” can be downloaded here.

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