CHARLOTTE, N.C.--(BUSINESS WIRE)--As the Dow index surpassed 16,000 this fall, U.S. investor optimism faltered in the fourth quarter, following the federal government’s budgetary standoff and shutdown in October. The Wells Fargo/Gallup Investor and Retirement Optimism Index fell eight points to +25 in November, down from +33 in August, the lowest level this year. The decline of eight points hinges more on investors’ waning confidence in the economy than on personal financial circumstances. The survey of 1,014 people was conducted between November 7 and 11, 2013.
Retired investors remain less optimistic than non-retired investors, at +6 versus +32, respectively. The median age of non-retired investors is 45, and the median age of retirees is 68.
Investors Participating in Retirement Plans More Optimistic
Results of the poll show an even greater difference in optimism between investors who have an active 401(k) or 403(b) retirement plan — meaning they are making regular contributions or taking regular disbursements — and those who do not. Investor confidence is +37 among those with active 401(k)/403(b) plans, versus +5 among investors without such plans. Non-retired investors with an active 401(k)/403(b) plan are the most optimistic, at +41, while optimism among retirees using one of the plans is +16. Sixty percent of all investors have a 401(k)/403(b) to which they are either contributing regularly or taking distributions.
“I’m not surprised the index fell during this quarter, but I am surprised optimism didn’t fall a lot further given the government shutdown. The main takeaway for me is the positive effect of the 401(k) plan, a planning and savings vehicle that has a direct and notable impact on investor outlook and their progress saving,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust.
Majority Saving for Retirement, Majority Contributing to IRA and Healthcare Costs Named Biggest “Saving” Barrier
Three-quarters of investors (75%) report that their saving and investing efforts are geared toward the long-term, including 53% who are mainly saving for retirement, and another 22% who are mainly saving for a different “long-term” goal. About one in five (22%) say they are focused on “medium-” or “short-term” goals.
Seventy-eight percent of investors who are actively using a 401(k)-type plan say they are prioritizing long-term saving. This contrasts with 71% who are not actively using a 401(k) plan. Additionally, the majority (56%) of non-retirees who also have a 401(k)-type plan identify “saving for retirement,” specifically, as their main savings priority, versus 41% of non-retirees who do not have a workplace retirement plan.
Among non-retirees who have an active 401(k)/403(b), 67% are also actively contributing to an IRA. Still, a majority of investors (54%) who do not have a 401(k)-type plan are actively contributing to an IRA.
From a list of five macroeconomic issues mentioned by Gallup pollsters to respondents, 34% of investors cite healthcare costs as the biggest “barrier to saving” for average Americans, followed by 30% who cite unemployment/underemployment, 19% who cite wage stagnation, 9% who cite education costs, and 5% who cite the price of energy.
Investors Not Sold on the Stock Market
Thirty-seven percent of all investors view the stock market as an “excellent” or “good” way for average Americans to grow their assets, whereas 62% call it “only fair” or “poor.” Those with an active 401(k)-type plan are no more positive than other investors about the stock market as a venue for growing assets, perhaps indicating broad societal concerns about the risks of stock market investing.
When investors were asked if looking at their 401(k)/403(b) balance over the past year made them feel more encouraged about their retirement savings, only 41% say they felt “more encouraged” while almost one in three (28%) say they felt no reaction when they looked at their balance. About a quarter (23%) say they felt “less encouraged.”
Similarly, despite record stock market gains in 2013, barely half of U.S. investors (51%) say now is a “good time to invest” in the markets versus 45% who say “it is not a good time.” Non-retired investors have a more positive view of investing in the stock market than retired investors; 54% think now is a good time to invest versus 43% of retired investors. Also, investors with a 401(k) plan are more optimistic about investing than those without a 401(k) plan, as 56% say “now is a good time” to invest versus 45% who don’t have a 401(k) plan.
The 401(k) Plan is “Essential”
The 2013 Wells Fargo Middle Class Retirement Study, conducted via phone by Harris Interactive in July and August in which 1,000 middle-class Americans ages 25-75 were surveyed, shares some similarities with the latest quarterly Wells Fargo/Gallup Investor and Retirement Optimism Index. Both studies convey the positive effect of having a 401(k) plan. According to the Harris study, 80% of middle-class Americans between the ages of 25 and 60 note that a 401(k) plan is “essential” to saving enough to retire comfortably. Women between the ages of 30 and 39 are the most supportive of all in the middle class, with 91% calling the 401(k) plan “essential.”
Access to a 401(k) Plan
According to the Wells Fargo Middle Class Retirement Study, seven in 10 employed middle-class Americans have access to a 401(k) or equivalent plan from their employers, and among those who have a plan, 96% are contributing. Three-fourths (77%) have an employer match, up from 66% in 2011.
There are differences between employed middle-class Americans who have access to a 401(k) plan and those who do not. People with access to a 401(k) have a median income of $69,000, are more likely to be employed full-time (92%) and less likely to be a part-time or self-employed individual (8%). People without access to a 401(k) have a median income of $60,000, 57% are employed full-time and 43% are either self-employed or employed part-time.
“When you look at the characteristics of people who have a 401(k) plan and those who do not, the major difference that I see is the employment status,” said Ready. “The difference between the median household income for the two groups is $9,000, which is not a sum that should completely deter saving. The issue, to me, is having access to facilitate regular saving. The bottom line is we need to promote a system that provides all Americans access to a plan that automates saving and investing for a better retirement outcome.”
People with Access to 401(k) More Confident and Save More
Middle-class Americans with access to a 401(k) plan are more optimistic and confident about their retirement. More than half (56%) say they are “very confident” or “confident” they will have saved enough for retirement versus 45% of employees without access to an employer-sponsored plan.
According to the Harris study, middle-class Americans with access to a 401(k) plan have a median savings goal of $300,000 and have saved $30,000 of that goal, three times the median amount of $10,000 saved by those without access to a 401(k) plan.
Employees without 401(k) plan access have a more pessimistic outlook:
- Sixty-four percent say they should save more for retirement but “just can’t seem to do it” versus 38% of those who have access to a 401(k).
- Nearly half (48%) say Social Security will be their primary source of income for retirement versus 22% of those with access to a plan.
- More than half (55%) say the stock market “doesn’t benefit people like me” versus 34% of those with access to a plan.
- More than half (55%) say it’s “not possible for me to pay my bills now and still save for retirement/throughout my retirement” vs. 37% of those with access to a 401(k) plan.
- Nearly half (49%) who do not have access to a 401(k) plan say they will never retire, but will work until they are “too sick” or will “die” versus 33% who say this and have a 401(k) plan available.
Mandating 401(k) Plans – What Do Middle-Class Americans Think?
As Congress considers ways to help Americans prepare for a secure retirement, 68% of middle-class Americans indicate that all U.S. businesses, no matter what size, should be mandated to offer 401(k) plans to all of their employees. Slightly more than half (52%) say that businesses should automatically enroll employees in 401(k) plans. However, only a third (32%) of the middle class says that Americans should be required by law to save at least 3% of earnings annually.
A majority (81%) of middle-class Americans with access to a 401(k) or equivalent plan say that if their employer did not offer a 401(k) or equivalent plan they would set up automatic contributions to another dedicated savings plan “like an IRA.”
“When I see data like the fact that eight in 10 of those with access to a 401(k) or similar plan would set up an IRA to mimic a 401(k) plan, it tells me that people understand the benefit of automatic contributions and that they want to reap the benefits of regular, disciplined saving,” added Ready.
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 November 7-11, 2013. The sampling for the Index included 1,014 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 73% non-retired and 27% retirees. Of total respondents, 60% had reported annual income of less than $90,000 and 40% 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 the 2013 Wells Fargo Middle Class Retirement Survey
On behalf of Wells Fargo, Harris Interactive Inc. conducted 1,000 telephone interviews of middle class Americans in their 20s (ages 25-29 only), 30s, 40s, 50s, 60s and 70-75, surveying attitudes and behaviors around planning, saving and investing for retirement. The survey was conducted July 24 – August 27, 2013. To target the middle class, the survey included only respondents who fell within specified income and wealth brackets. Those age 25 to 29 had 2012 household incomes of $25,000 to $99,999 and household investable assets of $99,999 or less. Those age 30 to 75 had 2012 household income of $50,000 to $99,999 or household investable assets of $25,000 to $99,999. The lower limits for 20-somethings were used to reflect the early stage of their careers. For the 20s age group, only respondents age 25 to 29 were included in order to focus on workers.
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, number of adults in the household, and number of phone lines (to adjust for probability of selection) were weighted where necessary to bring them in line with their actual proportions in the population.
About Wells Fargo Wealth, Brokerage and Retirement
Wells Fargo Wealth, Brokerage and Retirement (WBR) are one of the largest wealth managers in the U.S., with $1.3 trillion under management. 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 $288 billion in employer-sponsored retirement plan assets for 3.8 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 & Company (Twitter @WellsFargo)
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.5 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. 25 on Fortune’s 2013 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at blogs.wellsfargo.com.
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.
About Harris Interactive
Harris Interactive is one of the world's leading market research firms, leveraging research, technology, and business acumen to transform relevant insight into actionable foresight. Known widely for The Harris Poll®, Harris offers proprietary solutions in the areas of market and customer insight, corporate brand and reputation strategy, and marketing, advertising, public relations and communications research across a wide range of industries. Additionally, Harris has a portfolio of multi-client offerings that complement our custom solutions while maximizing a client's research investment. Serving clients worldwide through our North American and European offices, Harris specializes in delivering research solutions that help our clients stay ahead of what's next. For more information, please visit www.harrisinteractive.com.