Workers Favor Stock Market for Retirement Savings: Wells Fargo

A majority of working Americans feel confident that the stock market, now in an extended bull run, is a good place to save for retirement, but many other workers expect to fall short of their retirement savings goal, Wells Fargo reported Tuesday.

In a survey conducted for the firm by Harris Poll, 65% of respondents looked favorably on the U.S. stock market, a surge of 20 percentage points from a year earlier.

U.S. investors in a recent study anticipated that the protracted bull market would reverse course sometime this year, but so far were not getting too worked up about it. 

Sixty-two percent of participants in the new poll said they would “have enough savings to live on comfortably” throughout retirement, compared with 52% in 2016, and 46% said they would need to work until at least age 70, down from 50% last year.

“Consider the power of compounded savings and market returns for a participant with a $50,000 401(k) account balance in the beginning of 2009: That balance would be $180,000 by September of this year,” Joe Ready, head of Wells Fargo Institutional Retirement and Trust, said in a statement.

“Had investors allowed the correction to scare them off, they would have missed out on that growth opportunity.”

Harris Poll conducted 1,259 telephone interviews this summer with 1,006 workers age 30 or older and with 253 retirees.

Health Care Albatross

Less optimistic were 38% of respondents who expected their “standard of living will fall.” Wells Fargo said that health care costs appeared to be a major culprit.

Sixty-one percent of workers said health care costs prevented them from saving more for retirement, and half of retirees reported spending more than they had expected on health care.

Indeed, some 40% of workers 40 and older said health care costs and the potential for catastrophic illness was the biggest peril to their current retirement savings, while a similar proportion of those in their 30s cited job loss or not saving enough as the biggest threat.

As well, 30% of workers who were responsible for both child care and elder care cited rising health care costs as a threat to their savings, compared with only 18% of workers without such responsibilities.

The study referred to workers with dual responsibilities as the “sandwich generation,” noting that they comprise 36% of workers overall, of whom 43% are women and 30% men.

Seventy-one percent of the sandwich generation gave higher health costs as a reason for not saving more for retirement, compared with 56% of respondents not among this cohort.

Retirement Planning

The poll found that a quarter working Americans were not contributing to retirement savings through such things like a 401(k) plan, an IRA or other dedicated retirement savings plan.

For their part, those who had saved for retirement since the onset of their careers had much more set aside than those who were not consistent: a median $200,000 versus $50,000. The gap among retirees was bigger: a median $400,000 vs. $50,000.

After paying essential monthly expenses, 34% of workers said saving for retirement was their biggest financial priority, rising to 50% among workers 55 and older.

According to the survey, 30% of workers said they planned to rely heavily on Social Security during retirement, compared with 51% of retirees. Only 23% of consistent savers expected to do so, versus 35% those who were not consistent.

Asked about sources of funding for the biggest part of their retirement, 35% of respondents cited 401(k) savings, 17% Social Security and 17% pensions. Among those who contribute to a 401(k) plan, 53% said it would be the primary source of funding retirement.

Half of workers in the poll said they had actively considered developing a budget for living in retirement. A majority of workers reported having actively considered the following factors as part of their retirement planning process:

• The age at which they can afford to retire: 65%
• Steady monthly income from their investments: 56%
• Health care expenses: 55%
• The age by which they should start taking Social Security to maximize their benefits: 53%

“Even 45% of the 40-somethings in our surveys had actively considered a budget for living in retirement,” Ready said. “It’s a critical part of overall retirement planning and confidence.”

However, only 63% of workers 60 and older who have actively considered developing a budget said they had done so. The poll found that these workers, who are closest to retirement, had not considered the following factors as part of their retirement planning process:

• Steady monthly income from their investments: 36%
• A budget for living in retirement: 35%
• Health care expenses: 23%
• The age at which they can afford to retire: 22%
• The age by which they should start taking Social Security to maximize their benefits: 13%

“Many of these elements of planning are highly controllable by the individual and can significantly impact your standard of living in retirement,” Ready said.

When Harris Poll asked where they needed the most help in planning for retirement, 29% of workers said health care expenses, 22% developing a budget for living in retirement, 15% the age by which they should start taking Social Security to maximize their benefits, 14% deciding at what age they can afford to retire and 11% developing monthly income from their investments.

What Retirees Learned

Two-thirds of poll respondents said their retirement planning process focused primarily on avoiding the mistakes they have seen others make.