Participants June 13, 2017

Retirees and Non Retirees Differ on Interest Rate Outlooks

Wells Fargo’s Investor and Retirement Optimism Index offers some insight on what investors think of the interest rate environment and how they intend to address it.

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The Federal Reserve has raised interest rates twice since last year and many analysts expect that trend to continue, but many retirement savers see no immediate impact on their finances. According to the Investor and Retirement Optimism Index by Wells Fargo and Gallup, most respondents (66%) say the recent hikes have had no impact on investments, loans or any other aspect of their finances.

Still, the index reveals some disparities on perceptions of the interest rate environment among retirees and non-retirees. For those that did see some impact, 16% of retirees said it was positive. Only 9% of retirees said it was negative. As for non-retirees, 12% said it was positive and 17% said it was negative.

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More than half (60%) of retirees are satisfied with current interest rates, as are 60% of non-retirees. Twenty-nine percent of non-retirees are dissatisfied, and 37% of retirees feel the same way.

When asked whether they felt they had a good understanding of how higher interest rates would affect stock investments, most respondents had an optimistic response. More than half of retirees (77%) and non-retirees (76%) said they did. Only 16% of retirees and 23% of non-retirees indicated they were not aware of how these market forces affected their stock investments.

Answers varied when asked which situation would reflect positively on investments. Thirty-nine percent of retirees preferred a high interest rate environment, and 21% of non-retirees said the same thing. More than half (52%) of retirees said a low-interest environment would be better for their financial situations and 76% of retirees agreed.

“Whatever your age, low rates can hurt savers,” says Brian Rehling, co-head of Global Income Fixed Income Strategy, Wells Fargo Investment Institute. With rising rates, the inertia among investors to stick with their investments shows that they may be more comfortable with the risks in the stock market. However, the lack of meaningful rate and/or credit shocks in recent years may have given some investors a false sense of security.”

In response, most investors (67%) said they will make no changes to their investments if interest rates continue rising. However, 23% said they would take money out of stocks and into interest-bearing accounts or investments such as certificates of deposit (CDs). Twenty-four percent of non-retirees and 19% of retirees said they would do this.  

Participants June 13, 2017

Competing Priorities Keep Participants From Saving What They Should

A Lincoln Financial survey finds a disconnect between participants’ confidence about retirement and their actions.
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Lincoln Financial Group’s 2017 Lincoln Retirement Power Participant Study showed that while most plan participants are confident and optimistic about their retirement savings, they acknowledge that they are saving less than they think they should to meet their retirement savings needs. The study shows that competing financial priorities are the culprit producing this conundrum of confidence.

In 2012, when Lincoln Financial conducted its first Retirement Power study, only 29% of respondents reported being confident and 45% said they were optimistic about their retirement savings. This year’s study found 39% of respondents saying they feel confident, and more than half (55%) feeling optimistic.

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Two-thirds of retirement plan participants understand they should be saving at least 10% of their salary to stay on track, and 45% believe they need to save 15% or more. However, only four in 10 savers are putting away what they think is necessary, and, among the savers saving less, the majority (68%) would need to up their savings by 5% or more to be on track.

The more competing priorities a participant reports, the less money he contributes to his retirement plan, the survey found. Only 36% of individuals with eight or more competing priorities contribute 10% or more to their retirement plan, but of those with two or fewer priorities fighting for a share of their wallet, 59% contribute at least 10%, and 40% put 15% or more away for retirement.

Student loan debt has a major impact on retirement savings, no matter how many competing financial priorities a participant reported. Six out of 10 people with student loan debt said it is keeps them from saving more for their retirement.

“Savers today face many financial pressures, and the reality is that the majority are going to be responsible for their own retirement,” says Jamie Ohl, president, retirement plan services, Lincoln Financial Group. “As an industry, we have helped people understand the importance of saving. Now, it’s up to us to help them save more so they can achieve the retirement they envision.”

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