Investing February 6, 2019

Institutional Investors See Worst Calendar Year Performance Since Great Recession

“Fixed income was something of a safe harbor in the fourth quarter, and Corporate ERISA plans benefited from larger allocations to bonds,” says Bill Frieske, with Northern Trust.

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Institutional plan sponsors lost 3.8% at the median in 2018, as fourth-quarter losses dragged down returns for the year, according to Northern Trust Universe data.

The median plan in the Northern Trust Universe lost 6.6% in the quarter ending December 31, 2018. U.S. equities turned sharply negative in the quarter, with the median U.S. equity program in the Universe losing almost 15% in the period. The fourth-quarter wiped out gains of 3.3% at the median through the third quarter and resulted in the worst calendar year performance for plans in the Universe since a nearly 25% loss in 2008 during the global financial crisis.

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Corporate Employee Retirement Income Security Act (ERISA) plans had the best relative performance in the fourth quarter, losing 5.5% at the median, while the median plan in the Foundation & Endowment segment lost 6.3%, and the median Public Fund plan lost 7.3% in the quarter.

“Fixed income was something of a safe harbor in the fourth quarter, and Corporate ERISA plans benefited from larger allocations to bonds,” says Bill Frieske, senior investment performance consultant, Investment Risk and Analytical Services. “Weak results from hedge funds and domestic equities weighed on returns for Foundation & Endowment plans. Public Funds had the weakest results in the fourth quarter because they have the largest allocation to equities of any segment.”

The median total fixed income program in the Northern Trust Universe was up 0.6% in the fourth quarter. Alternative asset classes were a mixed bag: the median private equity program gained 3.0% in the quarter while the median hedge fund program lost approximately 5%, and the median real estate program was up slightly at 0.3%. The median total equity program—U.S. and international—lost 13.2% in the quarter.

The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $925.7 billion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.
Data and Research February 5, 2019

Most Retirees Report Being Financially Sound

A survey found retirees have better financial habits than those who are employed.

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A survey of retirees and employees ages 21 or older by T. Rowe Price found that retirees’ No. 1 financial objective is having peace of mind. Following that is maintaining an acceptable quality of life, managing day-to-day expenses, reducing debt and having a plan to convert assets into a stream of income.

The report, “Retirement Savings and Spending: Behaviors and Attitudes Toward Retirement,” also found retirees report being financially sound, with 77% saying they have enough money to pay for health care, 69% saying they live as well or better than when they were working, 59% saying they will be able to leave money to family members or charities, and 27% saying they will be able to help younger family members with tuition or housing expenses.

Only 20% said they will have to reduce their standard of living, a mere 16% said they will work at least part-time in retirement, and 9% said they will run out of money.

Asked about their concerns, 69% say it is their health, 68% say health care costs, 65% say it is whether their assets will last, 57% worry about who will provide them with care if needed, 51% are concerned about spending their time meaningfully and 46%, each, are concerned about whether their spouse/partner wants the same things out of retirement as well as how much time they can spend with their family.

Asked about their spending concerns, 28% say it is long-term care services, such as a nursing home, 23% say it is health insurance premiums, 20% say it is out-of-pocket health expenses, and 15% say it is housing expenses.

Asked about their financial habits, 81% of retirees say they always or often pay their credit card balances in full when due, 79% say they are always or often are able to stick to a monthly budget, and 46% say that after taking care of their expenses, they make some after-tax savings.

Workers were also asked about their financial habits, and they appear to be in slightly worse shape than retirees. Fifty-seven percent of workers say they always or often pay their credit card balances in full when due, 63% say they always or often are able to stick to a monthly budget, and 39% say that after taking care of their expenses, they make some after-tax savings.

The survey also asked retirees what sources they would turn to if they were to face an emergency that required more cash than they had on hand. Forty percent said they would turn to their savings, 30% said they would use an emergency fund they had built up, 28% said they would get cash from their credit cards, and 26% said they would turn to their workplace retirement accounts.

Workers, asked the same question, said they would turn to the following sources: credit cards (47%), family members or friends (32%), an emergency fund account (31%), personal savings (24%) and an emergency fund (21%).

T. Rowe Price’s findings are based on an online survey of 3,005 workers and 1,005 retirees conducted last July and August. The full report can be downloaded here.

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