Data & Research April 12, 2017

Retirement Trends Taking a Turn in America

For various reasons including recovering from the Great Recession and paying off debt, many Americans are working past the traditional retirement age of 65.
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The familiar narrative of retirement in the United States could be re-written as more people find themselves in the workforce past the traditional departure age of 65.

A recent survey by USA Today and Ipsos reports that nearly one-third of Americans ages 45 to 65 said they plan to delay retirement past the traditional benchmark. Twenty-two percent said they plan to exit the workforce between the ages of 66 and 70. Seven percent said they plan to do it within their early 70s, and 3% said they plan to call it quits after the age of 75. Moreover, 8% said they don’t plan to retire at all.

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And the Great Recession only added to what seemed like a perfect storm of financial calamities. Researchers note that “Bouts of unemployment, the housing crash, aid provided to distressed family members and mountains of student debt are some of the factors that respondents say are making it tough to save enough for retirement.”

According to the survey, nearly one-third cited unemployment as a major reason for falling behind on savings. They placed similar blame on mortgages (39%), medical issues (48%), helping family members (37%), and paying debt (44%).

However, at least 61% of those surveyed say they’re somewhat or very confident they’ll have enough money for living expenses, health care, housing, travel and other expenses in retirement. But after researchers crunched the numbers, the future did not seem so bright. Fifty-four percent say they’ll need more than $500,000 to live comfortably. But 30% have no retirement savings. And of those that do, 30% have less than $100,000, while 34% have between $100,000 and $500,000.

Of those who said they plan to work after retiring, more than half (65%) said they will need to supplement their income, though many point to other reasons as well, such as wanting to keep busy and stay socially engaged.

The future may hold more opportunity for those that need it. Researchers point out that employers are growing more accustomed to hiring consultants and other temporary workers to complete projects as opposed to bringing on full-time staff. This may allow older workers to find lower-level, yet decently-compensated, employment in fields they are already experienced in.

Respondents also listed more fun things they want to do in retirement. Fifty-five percent said they want to travel, and 52% said they would spend more time with family.

The Markets April 12, 2017

DC Plan Investors Can Learn From Endowment Portfolios

Endowment investors’ allocation to alternatives increased by 1% to 53%, while the overall bond allocation decreased by 1% to 8%, Nasdaq says.
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Diversified emerging markets was the best performing overall asset class for the Endowment Index during the first quarter of 2017.

The Endowment Index, calculated by Nasdaq OMX, shows portfolios using the endowment model grew 4.95% (on a total return basis) for the quarter ended March 31, 2017, closing with an index score of 1,125.13.  The firm observes the S&P 500 index gained 6.05% for the same period. 

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“Global markets have had a broad and favorable upward bias to start 2017,” Nasdaq reports. “This was reflected in 15 of the Index’s 19 components providing a positive return for the first quarter.  While emerging markets-diversified was the single best performing overall asset class (+11.74%) for the quarter, the Index components providing the greatest overall contribution to the Index’s positive performance were private equity (+1.02%), domestic equity (+0.92%), and international developed equity (+0.70%).”

Nasdaq finds negative performers included “oil/gas, managed futures, commodities and international bonds, although the impact from these declines was minimal.”

Important to note, the index was “reconstituted and rebalanced in early February, with some minor changes to several asset classes.”

“Overall, the allocation to alternatives increased by 1% to 53% while the overall bond allocation decreased by 1% to 8%,” Nasdaq says. “Within those asset classes, venture capital increased while allocations to developed and emerging market debt, as well as distressed debt were reduced.”

There are important differences to consider between endowment model investing goals/processes as compared with Employee Retirement Income Security Act (ERISA)-governed retirement plans, yet the firm suggests investors can still learn from the example set by large, disciplined endowment portfolios. For example, endowments generally benefit from a willingness to pursue alternative asset classes and by being willing to commit capital across longer time scales. They also seem to understand that short-term risk, and even some losses, must be accepted in the name of long-term performance. Retirement plans may be limited in some circumstances from mimicking endowment portfolios by liquidity concerns, but thinking around these topics is shifting.

Nasdaq encourages readers to visit www.endowmentIndex.com to download an index fact sheet or full spreadsheets containing longer term performance information. 

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