- 20-point surge in optimism about the
markets
- But nearly 4 in 10 still say they won’t
reach their retirement savings goal
- Half of retirees say they’re spending
more than expected on healthcare, and just over 1 in 3 say their
standard of living went down once they retired
- More than half who contribute to a
401(k) plan say it will be the primary source of retirement
funding
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.
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Trends from the 2017 Wells Fargo
Retirement Study (Graphic: Business Wire)
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171017005567/en/
MediaLeslie Ingberg,
612-667-0265Leslie.Ingberg@wellsfargo.com
Wells Fargo (NYSE:WFC)
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