Retirees Blossom with Retirement Confidence

The Wells Fargo/Gallup Investor and Retirement Optimism Index jumped 12 points in the first quarter, rising to +37 in February, from +25 in November. The positive sentiment comes close to the +43 of last May before the budget brinksmanship and partial government shutdown lowered investor optimism last autumn.

In just three months, the retirees in Wells Fargo’s survey went from +6 to +41 in the index, which Joe Ready, director of Wells Fargo institutional retirement and trust, calls a surprise—and one that obviously drove a big part of the overall increase in optimism. Behind the numbers is the positive feeling on retirees’ part that they will be able to generate their current level of income or actually increase it over the next 12 months. “They also had a more positive outlook on the stock market in general,” Ready tells PLANSPONSOR.

“We think the survey is a good view of mass market America,” Ready says. “At the end of the day, these are retail investors who happen to be in an investment called a 401(k).”

Ready says two key points in the survey are of particular interest to plan sponsors. First, investors really value the pre-tax savings and the savings habits created by the workplace retirement plan. “An overwhelming majority (91%) said they would favor an increase in the amount they can defer above today’s limits,” he says.

The other piece, Ready says, was not a surprise. “About 78% said they would not be in favor of higher penalties or taxes to prevent plan leakage,” he says. “They love the pretax saving and the savings habits, but they want to maintain flexibility.”

Respondents were asked which they would choose, if they could use the services of a coach to help with physical fitness and a coach that would help develop a financial plan and assist someone in becoming physically fit. Slightly more than half (54%) said they would choose financial fitness. “This says to me that people want help,” Ready says. “They need it, and they would value someone helping guide them.” This is an area for plan sponsors to consider, Ready says, “because “continued access to the plan and education are really important.”

Ready says investor fear still lingers. More than half (62%) of people said the stock market gains of last year had not erased their fear of another market drop. “One year is not a trend: that’s the message.” In fact, he notes, “58% said they would expect a downward market correction in next 12 months. People are still skittish.”

Another interesting result was people’s preference for slow or low-growth investments that do not put principal at risk. Ready says 54% of survey participants would choose such an investment over a higher-growth one that would involve some risk of principal loss.

Other findings from the study are:

• Investors prize financial knowledge, and a majority (65%) say they have it;
• 57% of investors believe the existing retirement vehicles, including the 401(k) and IRA, provide enough options to Americans;
• 34% say income inequality in the U.S. will make it “harder” to retire; and
• 78% of retirees would choose a guarantee of security on their principal than take some risk and have higher growth potential.

The Wells Fargo-Gallup Investor and Retirement Optimism Index was conducted by phone from February 6 to 16 and surveyed 1,011 investors randomly selected from across the country. It can be downloaded here.