March 3, 2011

Federal Deficit, Unemployment Top Investor Concerns

Overall, pre-retirees are far more pessimistic than retirees

A survey by Wells Fargo and Gallup released Wednesday found that U.S. investors are as worried about the federal deficit as they are about traditional economic concerns.

According to the Wells Fargo/Gallup Investor and Retirement Optimism Index, the federal budget and unemployment tied as top investor concerns, with 71% of investors polled saying each of these is hurting the investment climate “a lot.”

Energy prices are another top concern, with 60% of respondents saying prices hurt the investment climate "a lot." State and local governments have investors concerned as well, with 58% saying those governments' financial situations are hurting the investment climate.

The generally divisive environment in the government is a major concern for more than half of respondents, while 46% expressed concern about home price values and 38% were worried about the availability of credit.

Still, 62% of investors say now is a good time to invest in the financial markets.

While investors' overall optimism is up from its lowest point during the recession, it's still far below pre-crisis levels. The Index rose to 42 in February, up from its all-time low of -64 in February 2009. In February 2007, though, the Index was at 90.

Looking at optimism between people who are already retired and those who have yet to do so, it's clear that retirement planning is a daunting task. Retirees scored 61 on the Index, nearly twice the level of pre-retirees who scored just 35. The mean age of the retirees surveyed was 69 and the mean age for pre-retirees is 46.

“The gulf in optimism between retired and non-retired Americans is also remarkable, reflecting what we believe will continue to be a dominant issue in public discourse for the next decade – the ability of Americans to achieve a financially secure retirement,” said David Carroll, senior executive vice president and head of Wells Fargo Wealth, Brokerage and Retirement, in a statement.

Perhaps the gap in optimism between pre-retirees and retirees is due to the way they are funding – or will fund - their retirement. Almost three-quarters of pre-retirees say their 401(k) will be a "major source of retirement funding," compared with just 38% of the retirees. Retirees depend largely on Social Security and pensions; 48% say Social Security is a major retirement funding source, and 49% say their pension is their major source of income.

With just 28% of pre-retirees anticipating Social Security will be a major source of income in retirement and 39% who say they will depend on a pension, it seems to indicate Americans believe retirement is the individual’s responsibility. However, less than a quarter of pre-retirees say they have a written plan for retirement.

“When you look at the data and see how people anticipate funding their retirement, we almost have two retirement systems in the U.S. today, with most non-retired Americans in the position of having to plan for their retirement on their own,” said John Papadopulos, head of Wells Fargo Retirement, in a statement. “We see the complexity and to some extent the stress of living life and planning for retirement asfactors in reducing optimism.

Differences in retirement funding approaches aside, pre-retirees and retirees alike expressed a "waning confidence" in the stock market; 61% percent of pre-retirees say they are at least a little confident in the market, compared with 59% of retirees.

Overall, pre-retirees aren't approaching retirement with confidence. While 61% of retirees confident in their ability to fund health care needs in retirement, just over one-third of pre-retirees agreed. While 62% of retirees said they are confident they can maintain their lifestyle in retirement without working, only 40% of pre-retirees think they will be able to do so.

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