Most Participants Ignored Fee Disclosure

The rest, 70%, said they paid “little” to “no attention” to the new information about fees that has been published in the last year. More than half (65%) of investors surveyed have a 401 (k) plan (44% retired and 72% non-retired).

Somewhat interestingly, 37%, more than say they paid attention to the information, said the information had an impact on the way they manage their 401(k). Sixty- two percent said the new fee information has had “no impact” on the way they manage their 401(k).

This is in line with what Wells Fargo saw across its call center and website, noted Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust, speaking with PLANADVISER. The company tracked its call center volume and visits to the plan participant websites after the release of the disclosures last year, and noticed no increase in volume or traffic, she said. In fact, she noted, the most common question came from those who received the disclosures but are not plan participants.

(Cont’d…)

Concern About Higher Tax Rates 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. What does this mean for the 401(k), asked Nordquist.

If everyone is expecting to pay higher taxes in retirement, will they question the benefit of the tax-advantaged saving? According to those surveyed, 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. 

Lack of Planning, But Optimism

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. However, a third (29%) of non-retired investors say they have a written plan for retirement, while more than half of investors say their retirement calculations are “a guess.”

“Whether they are not worried about not being happy because happiness is not financial or they don’t know how unprepared they are,” is unclear, said Nordquist.

Cont’d…)

Low Interest Rates

Overall, 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 divergence between retired Americans (with median age of 70) and non-retired Americans (with median age of 46) comes after six quarters of closely aligned sentiment between the two groups of investors where they seemed to move in tandem, Nordquist said.

A positive note, according to Nordquist, was that although half (51%) of investors say now is a “good time” to invest in the financial markets, 85% of investors made no changes to their investments in the stock market.  “Most investors are aware of the markets,” she said, “but are not doing anything to chase returns.”

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 (56%) investors say the rising stock market has had either a “major” to a “minor” positive impact on their confidence in 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.

Retirees are not reacting to the stock market, but are reacting more to the low interest rates, Nordquist said. In fact, 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. People understand there is some immediate benefit to the low rates, she explained, but are concerned about how those affect their ability to live on a fixed income.

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.  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.

The Wells Fargo-Gallup Investor and Retirement Optimism Index included 1,035 investors who are head of a household or a spouse in any household with total savings and investments of $10,000 or more.