CHARLOTTE, N.C. - June 2, 2011
Overall investor optimism declined between February and May, as rising energy prices, budget deficits and persistent unemployment dampened sentiment, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index. The Optimism Index fell to 33 in May, down from 42 in February.
The top three factors hurting the investing climate “a lot,” respondents said, are the price of energy cited by 79% of respondents, up from 60% in February, the federal budget deficit at 75% and the unemployment rate at 67%.
Starting in February, the Wells Fargo/Gallup Investor and Retirement Optimism Index began breaking out the overall index into indices to show optimism levels for retired and non-retired Americans. The May poll shows optimism among the non-retired fell from 35 in February to 24 in May while U.S. retirees maintained a consistent optimism level of 61 in both the February and May polls. The average age of retirees surveyed is 69 and that of non-retirees is 45.
“The decline of investor optimism among average Americans is concerning, and comes at a time when investors are worried about high energy prices and the federal budget deficit,” said David Carroll, Senior Executive Vice President and head of Wells Fargo Wealth, Brokerage and Retirement. “It is striking to see that retirees in the U.S. have maintained consistent optimism levels over the past quarter, with the major slide in sentiment concentrated among working Americans who continue to face the pressure of supporting day-to-day expenses in the midst of trying to plan for their future.”
In line with the drop in the overall Optimism Index, the percentage of investors saying “now is a good time to invest in the financial markets” fell to 53% in May (with no difference between retired and non-retired respondents) down from 62% in February. During the period of December 31, 2010 to May 2, 2011 the S&P index rose 8.23%.
May Investor Optimism remains far above the depths of the recession in 2008-2009, when the Index hit its all-time low of negative 64 in February 2009; the current Index remains well below pre-crisis levels, when it registered 95 in May 2007. The Wells Fargo/Gallup Index is based on answers to seven core questions, asked quarterly, in telephone interviews. The current poll was conducted with 1,099 investors aged 18 and older from May 2 through May 10, 2011.
Planning For and Funding Retirement in the U.S.
The May poll found significant differences between how today’s retired Americans are funding their retirements and how those yet to retire expect to do so. Current retirees are more likely to depend on employer-sponsored pensions and Social Security, while future retirees expect to rely on their own savings:
- Nearly two in three (65%) of the non-retired say the 401(k) will be a major source of retirement funding for them, compared to 37% of the retired.
- Only 33% of non-retirees expect pensions to be a major funding source for retirement, compared to 46% of retirees.
- Only 30% of non-retirees expect Social Security to be a major retirement funding source, compared to 52% of retirees.
While the poll results suggest younger Americans see retirement saving as the individual’s responsibility, only a small proportion has created a written retirement plan to fulfill that responsibility. About a quarter (27%) of the non-retired respondents and about a third (37%) of those retired say they have a “written” plan for retirement.
Sixty two percent of the non-retired who have a written plan say they have either a “great deal” or “a lot of confidence” that they will “have enough money to live comfortably” in retirement versus 37% of those who do not have a written plan or any plan at all.
Among those with a written financial plan, 92% of non-retirees and 94% of retirees feel their current plan will act as an investment roadmap for them for years to come.
Cost of Healthcare Top Concern
When asked to rate six factors that could affect when they will be able to retire, non-retired respondents said the cost of healthcare (72%), inflation (62%) and the price of energy (60%) were the most likely to have a “major impact.”
“In an environment where the cost of healthcare is the top factor in determining when to retire, having a financial plan that takes into account a range of variables that people may encounter in retirement will put people in a much better position to influence their futures,” said John Papadopulos, head of Wells Fargo Retirement. “Planning is a significant part of creating financial security.”
Only one in three non-retired have a “great deal of confidence” or “quite a lot of confidence” that they'll be able to fund their healthcare needs in retirement beyond what Medicare offers.
Even at the cost of saving less for retirement, the vast majority of non-retired Americans (87%) said they would provide financial support to parents or adult children needing help.
Healthcare Plays Major Role in Where Americans Will Retire
The most important consideration for non-retirees in choosing a place to retire is proximity to a good medical facility, with 60% saying this is a “major factor,” followed by consideration of low state and/or real estate taxes at 52% and a “less costly place to live” at 45%.
Most non-retired American investors surveyed own their home (83%); most feel the home is now worth more than when they bought it (64%). Most non-retired Americans have a mortgage (80%), while 19% have paid off their mortgage.
Eighty-six percent feel it is “somewhat important” to “very important” that they have their mortgage paid off when they retire; 58% see their home as an investment asset that will help fund their retirement. Of those, 42% say their home will help fund their retirement by providing them a place to live and 39% say it is “an asset to sell for retirement funds.” About one in three non-retired Americans (31%) say they would consider renting throughout their retirement.
About 63% of non-retired investors say they have a 401(k) account to which they have contributed and 72% say their employer matches some part of their contribution. Nearly two in three investors (64%) say the contributions by their employer keep them contributing or encourage them to contribute more to their 401(k) account. Thirty-six percent of non-retired Americans say they intend to put away more money for retirement over the next 12 months than they did in the past 12 months, while 55% say they will put away the same amount.
About the Wells Fargo-Gallup Investor and Retirement Index
These findings are part of the Wells Fargo-Gallup Investor and Retirement Optimism Index, which was conducted May 2-10, 2011. The sampling for the Index included 1,099 investors randomly selected from across the country with a margin of sampling error is +/- three percentage points. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. The sample size is comprised of 64% non-retired and 36% retirees. Of total respondents, 65% had reported annual income of less than $90,000 and 35% of $90,000 or more. About one in three American households have at least this amount in savings and investments. The Wells-Fargo Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism that provides its historical data. The Index had a baseline score of 124 when it was established in October 1996. It peaked at 178 in January 2000, at the height of the dot-com boom, and hit a low of negative 64 in February 2009.
About Wells Fargo Wealth, Brokerage and Retirement
Wells Fargo Wealth, Brokerage and Retirement (WBR) is one of the largest wealth managers in the U.S., with $1.4 trillion client assets under management as of March 31, 2011. WBR includes Wells Fargo Advisors, the third-largest brokerage in the U.S.; Wells Fargo Private Bank, serving high-net-worth individuals and families; Wells Fargo Family Wealth, serving ultra-high-net-worth families; and Wells Fargo Retirement, which manages $244 billion in 401(k) and pension assets for 3.6 million Americans. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.2 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With approximately 280,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked No. 23 on Fortune’s 2011 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.
For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of people’s attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions.
Note: Complete survey results and a chart showing the index movement is available upon request.