Data & Research August 3, 2017

Middle-Income Boomers Still Struggling After Financial Crisis

Only 37% think they will have a satisfying retirement.
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Middle-income Baby Boomers—those with an annual household income between $30,000 and $100,000 and less than $1 million in investable assets—are still struggling in the aftermath of the 2007 financial crisis, the Bankers Life Center for a Secure Retirement found in a survey.

Twenty-eight percent are now making more conservative investments, and 26% no longer invest at all. Only 16% expect to have savings. A mere 34% expect to retire debt free. Only 19% expect they will pay off their mortgage, and just 16% expect to leave an inheritance. Before the financial crisis, 35% of Baby Boomers expected to work part-time in retirement. Today, 48% expect to work part-time.

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“Though they’ve weathered the storm, for many Boomers, the new retirement means working longer,” says Scott Goldberg, president of Bankers Life. “We see this trend as an opportunity for individuals to enjoy both the financial and emotional benefits of staying employed, even part-time.”

Fifty-one percent of middle-income Boomers believe the economy has recovered somewhat, but only 2% think it has fully recovered, and 47% do not think it has recovered at all. Among the 65% of middle-income Boomers who have not felt a personal benefit from any economic recovery, 52% say they have less savings than before the financial crisis.

While 41% of middle-income Boomers felt well- or very well-prepared for retirement before the financial crisis, that has dropped to 31%. Before the crisis, 44% thought they would have a satisfying retirement. Today, that is 37%. Before the crisis, 65% of middle-income Boomers felt confident in meeting their daily financial obligations, and that has now dropped to 57%.

In fact, 68% of this group thinks they may face another financial crisis. All told, as the Bankers Life for a Secure Retirement says in its report, “10 Years After the Crisis: Middle-Income Boomers Rebounding But Not Recovered,” “The crisis has resulted in Boomers remaining pessimistic about their chances for a secure retirement.” The full report can be downloaded here.

Data & Research August 3, 2017

DC Plans Riding High on the Equity Markets

Fidelity’s second-quarter 2017 401(k) plan analysis shows record balances tied to strong performance in the stock market.
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Positive stock market performance and increasing contributions drove average 401(k) and individual retirement account (IRA) balances to record levels during the second quarter of 2017, according to data shared by Fidelity Investments. 

Both IRAs and 401(k) plans are up nicely compared with this time last year. The average IRA today has $100,200 invested, up from $89,600 last year and $73,100 five years ago, while the average 401(k) holds $97,700, up from $89,100 last year and $73,300 five years ago.

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Far and away the most impressive gains were measured among those people who actively maintained and contributed to their 401(k) account for the preceding 10 years. This group, Fidelity reports, saw their balance increase to a record average of $266,100, up from $78,800 in Q2 2007.”

“The 10-year growth is attributed to 53% market action and 47% employee contributions, which shows the benefit of saving and investing with a long-term view,” Fidelity experts observe. Also notable, Fidelity’s yearly analysis of small business retirement plans, which includes self-employed 401(k) accounts, self-employed (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, indicates average balances have increased by double digits since Q2 2016. In particular, the data shows the average balance for self-employed 401(k)s increased 10% to $162,700, while the average balance for SEP IRAs increased 14% to $100,400. The average balance for SIMPLE IRAs grew to $39,000, an increase of 10% from Q2 2016.

Not all the signs in the analysis are positive, of course. For one, rising stock markets could very likely lead to overexposure in equities among 401(k) and IRA investors not taking advantage of automatic rebalancing; Fidelity says target-date funds and managed accounts can help keep investors on track. Beyond this, Fidelity’s analysis shows more than one in five employees did not contribute enough to their 401(k) to take full advantage of their company’s matching contributions.

Fidelity researchers suggest the stock market’s performance over the last several years “means people may have a greater allocation of stocks in their 401(k) accounts than we would recommend. This could expose their retirement savings to unnecessary risk in the event of a market downturn.”

Again highlighting the value of managed accounts and TDFs, Fidelity found that fully 40% of those who managed their own 401(k) asset allocation had a stock allocation in their 401(k) that was higher than recommended, up from 38% in Q2 2016.  

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