From the February 2009 issue of Investment Advisor • Subscribe!

February 1, 2009

Retirement News & Products

February 2009

Recent research by the Investment Company Institute (ICI) found that despite a 40% drop in the U.S. stock markets last year, the vast majority of U.S. workers who invest for retirement via 401(k) plans are staying the course and want to preserve the 401(k). Meanwhile, findings from the ICI report, The U.S. Retirement Market, Second Quarter 2008, shows that American savers held $16.9 trillion in retirement assets at the end of the second quarter of 2008, accounting for nearly 36% of all household financial assets in the United States. The report covers assets held in private-sector pension plans, both defined benefit and defined contribution; government pension plans; annuities; and Individual Retirement Accounts (IRAs). Between March 31, 2008, and June 30, 2008, retirement assets remained largely unchanged from a revised finding of $16.9 trillion in the first quarter, ICI says. During the second quarter, total return on equities was -2.7%, while bonds returned -1.2%, according to the Standard & Poor's 500 stock index and the Citigroup Broad Investment Grade Bond Index.

At the end of the second quarter, the ICI research found that IRAs held $4.5 trillion of retirement market assets; another $4.3 trillion was held in employer-sponsored defined contribution plans, of which $2.9 trillion was held in 401(k) plans. Mutual funds accounted for 47% of IRA assets and 51% of defined contribution plan assets.

Lifecycle funds continued their growth during the second quarter: assets in those funds reached $205 billion, compared to $190 billion at the end of the first quarter. Almost 90% of assets in lifecycle funds were held in retirement accounts.

Speaking of IRAs, Cerulli & Associates says it expects total IRA assets to swell to more than $7 trillion by 2013, growing at a steady year-over-year clip of 9%. The Pension Protection Act of 2006, however, "will bring to bear next-generation DC plans, and IRA providers need to be aware of the subsequent changes to the 401(k) market, adapting their product and delivery models accordingly," Cerulli says in a recent research report. Cerulli says it categorizes limited advice as semi-custom advice solutions. "These solutions appear to be increasing at the expense of the direct-advice model on one end and the full-advice model on the other," Cerulli says. In a 2008 Cerulli survey, 52% of firms ranked product improvement of IRAs via retirement-income options as an excellent method of enhancing IRA strategies. "Asset managers are developing retirement-income funds that embed advice in an effort to capture the rollover dollars of investors seeking retirement income solutions," according to Cerulli.

It appears that investors who use advisors--including retirees and pre-retirees--have been more satisfied with their asset allocation performance during the market upheaval than those investors who've gone it alone. According to a recent survey by Natixis Global Associates, nearly half (48%) of investors without advisors say they are dissatisfied with how their asset allocation has held up against the market, but only 38% of investors with advisors share this view. The 2008 Natixis Global Associates Investor Survey, conducted by Richard Day Research, Inc., was based on 600 interviews with investors 44 years and older with a minimum of $250,000 in investable assets. The survey was conducted online between November 6 and November 11, 2008. Sub-groups included retirees (200) and pre-retirees (200) working with advisors, and 200 self-directed individuals.

Compared to pre-retirees, retirees are more satisfied with their advisors' performance during the economic crisis and express greater faith in the advice they receive, according to the study. Retirees report "more frequent communication with advisors (43% vs. 33% of pre-retirees) and greater satisfaction with expectations-setting with regard to investment performance (53% vs. 41% of pre-retirees)," the study notes. The study in particular found that more retirees than pre-retirees (69% vs. 59%) strongly agree with the statement, "I know what my retirement savings are invested in and the reasons why the investments were chosen."

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