71% of Non-Retired Americans Worry About Paying Higher Federal Taxes In Retirement
CHARLOTTE, N.C. - April 24, 2013
U.S. investor optimism rose to +31 in March, up from -8 recorded in November 2012 according to the quarterly Wells Fargo/Gallup Investor and Retirement Optimism Index. The overall rise in optimism is due to a surge among non-retired Americans whose sentiment rose from -8 in November 2012 to +38 this spring. Retired Americans are not nearly as optimistic at +7, which is up from -5 recorded last November. The 30-plus point difference in optimism between retired and non-retired comes after six quarters of closely aligned sentiment between the two groups of investors. The median age of the non-retired investor is 46 and of the retiree is 70.
Half of investors (51%) say now is a “good time” to invest in the financial markets, up from 39% from last quarter and now at the same levels as February 2012. Fifty-four percent of the non-retired say this is a “good time” to invest while less than half (43%) of retired investors hold this same view. The survey was conducted between March 14 and 24, 2013 by telephone interviews.
Despite the strong performance of the stock market in the first quarter 2013, 85% of investors say they “made no changes” to their investments in the stock market. Ten percent of investors increased their stock market investments during the first quarter 2013 (6% of retired and 12% of non-retired investors). In the first quarter 2013, the S&P 500 rose 143 points, or 10%, from the fourth quarter 2012.
“The emerging optimism is encouraging, but the disparity in optimism between the non-retired and retired is notable. The lack of action on the part of investors during the first quarter rally shows that people stayed the course and didn’t have a knee-jerk reaction that caused them to change their investment allocations,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.
Low Interest Rates Have a Big Effect
Half of retired investors (50%) say the low interest rates have done “a great deal” or “quite a lot of harm” to savers and investors as compared to 25% of non-retired investors. When asked if the benefits of low interest rates have “outweighed the costs,” 69% of non-retired investors agree, but this falls to 51% of retired investors. Thirty-five percent of retired investors and 28% of non-retired investors say that low interest rates have caused them to “put money in investments that they might have avoided.”
“In general, investors think low interest rates have had a positive effect but at the same time, they seem to be more of a burden to retired Americans today who are living on a fixed income. Low interest rates seem to become more challenging when we ask non-retired investors to think about their effect on their future retirement,” added Nordquist.
Nearly half of all investors (47%) say today’s low interest rates will make them live “less comfortably” in retirement —45% of retired and 48% of non-retired investors. Forty-three percent of all investors — 35% of retired and 46% of non-retired — fear low rates will mean they will “outlive their money” in retirement. One in three non-retired investors (33%) say low interest rates will cause them to “delay” retirement.
However, three in four investors (74%) see low interest rates having a positive impact on housing. In the past two years, 33% have taken advantage of the rates and refinanced their home – 39% of non-retired and 14% of retired. For those investors who refinanced, 43% say they did so to reduce the number of years of their mortgage and 32% said they saved the money.
Majority of Investors Worried They’ll Pay Higher Taxes in Retirement
Sixty-eight percent of investors — 59% of retired and 71% of the non-retired — are worried that they will have to pay higher federal taxes in retirement and will have a more difficult time living “comfortably” in retirement. As a result, 39% say their worry over higher taxes has made them “more likely to seek after-tax investments,” but 58% say they have not.
“Traditionally, retirement has been a time when you might hope for lower taxes, but this is not the case right now. I hope that people will think about taxes more proactively in the context of overall retirement planning,” said Nordquist.
Half of all investors say they supported the suspension of the payroll tax holiday in order to provide more funds to Social Security. One in three (35%) say the suspension of the payroll tax hike has forced them to reduce their overall spending, and a similar percentage (32%) say it has forced them to reduce the amount they are saving for retirement.
In terms of public policy, 59% of investors in this survey say that they’d like to see political confrontations in the nation’s capital come to end as opposed to potentially “getting their way" on future government spending, tax policy and federal budget deficits.
Sixty-two percent of investors say recent political confrontations have had a “major negative” impact on the overall economy, 55% say a “major negative” impact on business confidence, and 53% say a “major negative” impact on consumer confidence. Most (88%) say a politically divided federal government hurts the investment climate, with 70% saying it hurts “a lot.”
A Very Optimistic Retirement Outlook
American investors are optimistic about life in retirement with 61% of non-retired investors saying they have “no worries” about being “unhappy” in retirement. Sixty-nine percent of retired investors express the same lack of worry.
A third (29%) of non-retired investors say they have a written plan for retirement, down from 34% last quarter. Over half of investors say their retirement calculations are “a guess.”
Two in three investors (66%) — 56% of retired and 70% of non-retired — say they feel “little or no control” in their ability to build and maintain their retirement savings in the current environment.
More than half (65%) of investors say they have a 401 (k) plan (44% retired and 72% of non-retired investors). Among those with a 401(k) plan, 30% say the new fee information was something they “paid attention to,” while 70% say they have paid “little” to “no attention” to the new information about fees that has been published in the last year. Sixty- two percent say the new fee information has had “no impact” on the way they manage their 401(k); however, 37% say the new information had an impact.
Over half (56%) investors say the rising stock market has had either a “major” to a “minor” positive impact on their confidence in the economy. One fifth of investors say the rising stock market has had “no impact” on their perception of the economy.
Similarly, 55% of investors say the rising market has had a “major” to a “minor” positive impact on their ability to retire, while 33% say the rising market has had “no” impact on their ability to retire.
About the Wells Fargo-Gallup Investor and Retirement Optimism Index
These findings are part of the Wells Fargo-Gallup Investor and Retirement Optimism Index, which was conducted March 14 - 24, 2013 by telephone. The sampling for the Index included 1,035 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. About two in five American households have at least $10,000 in savings and investments. The sample size is comprised of 74% non-retired and 26% retirees. Of total respondents, 64% had reported annual income of less than $90,000 and 36% of $90,000 or more. 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. WBR includes Wells Fargo Advisors, the third-largest brokerage in the U.S.; Wells Fargo Private Bank, serving high-net-worth individuals and families; Abbot Downing, serving ultra-high-net-worth families; and Wells Fargo Retirement, which manages $279 billion in institutional retirement plan and pension assets for 3.7 million Americans. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company: Wells Fargo Advisors, LLC, and Wells Fargo Advisors Financial Network, LLC (members SIPC).
About Wells Fargo & Company (NYSE: WFC)
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.4 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, and the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 270,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortune’s 2012 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 are available upon request.