Non-retired investors give more forethought to leisure time
in retirement than to medical costs or taxes
More than half report they could withstand a 10 percent
correction
Female investors more fearful of volatility
The Wells Fargo/Gallup Investor and Retirement Optimism Index
remains at a 17-year high, with the index at +139 in the first
quarter. This is essentially unchanged from the past two quarters,
but up from +126 a year ago. The last time the index exceeded the
current level was in September 2000, when it was +147.
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Wells Fargo/Gallup Investor and
Retirement Optimism Index Q1 2018 (Graphic: Business Wire)
Investors remain solidly optimistic on three economic aspects —
economic growth, stock market performance and unemployment. Sixty
percent of investors say they are at least somewhat optimistic
about the 12-month outlook for these economic aspects, and fewer
than a quarter are at least somewhat pessimistic. Investors are
less optimistic about inflation than the other factors, with 40
percent at least somewhat optimistic and 34 percent at least
somewhat pessimistic.
Investors are most positive about maintaining their household
income over the next year and about reaching their five-year
investing goals, with 71 percent at least somewhat optimistic about
each.
“Over the course of this bull market since the recession, there
have been periods of volatility. But people seem to brush it off
and stay the course, knowing it will help them in the long run in
retirement. This type of investment discipline is an important part
of an overall financial plan,” said Joe Ready, head of Wells Fargo
Institutional Retirement and Trust. “However, now is a good time to
step back and assess your current investment allocation and
rebalance investments to make sure they align with your targeted
risk strategy.”
The index is a broad measure of U.S. investor confidence in the
investing climate. Retired investors remain more optimistic than
non-retirees, with index scores of +155 and +134, respectively,
which is similar to their confidence levels in the two prior
quarters.
The first quarter Investor and Retirement Optimism survey was
conducted Feb. 12–25, 2018. Interviewing began a week after
January’s solid labor report was released, but also after a major
sell-off on Wall Street, when the Dow Jones Industrial Average
dropped below 24,000. By the time of the survey, the market was
already starting to recover.
Majority not concerned about recent volatility
About half of investors, 52 percent, report feeling “not too
concerned” or “not at all concerned” about recent volatility in the
stock market. Just under half, 45 percent, say they are “very” or
“somewhat concerned.” However, this is well below the 53 percent
who reported concern after stock market volatility in 2015 and 64
percent in 2016.
Although there is no difference in these concern levels by age,
there are differences by gender —with 53 percent of female
investors versus 38 percent of male investors saying they are
“very” or “somewhat concerned” about the recent volatility.
Further evidence that investors rode out the recent market
swings fairly comfortably: Sixty percent say it is a good time to
invest in the financial markets, unchanged from a year ago and
higher than the average 51 percent recorded on this measure since
2011. This measure sank as low as 35 percent in the past, in
September 2011.
In addition, the 49 percent of investors who say they have
“quite a lot” or “a great deal” of confidence in the market as a
place to save and invest for retirement is up from 36 percent in
February 2016. This also is the highest level of confidence seen on
this measure in the six-year Wells Fargo/Gallup investor trend on
this question. When asked to respond to a specific example, more
than half (53 percent) say they could tolerate a market correction
of 10 percent or greater over the course of a year on a $10,000
investment.
“Taken together, these and other findings from the survey show
many investors are optimistic about the future, yet realistic about
any near-term challenges they may face in the current economic
environment,” said Ready.
While stocks offer long-term growth potential, investors should
understand that stocks may fluctuate more and provide less current
income than other investments. An investment in the stock market
should be made with an understanding of the risks associated with
common stocks, including market fluctuations.
Investors divided on income tax law benefits
Investors are divided about the possible effects of new changes
to personal and corporate income taxes on various sectors of the
economy, especially job creation and the stock market.
On personal income taxes:
- In the survey, 35 percent of investors
say the changes to federal personal income taxes will be mostly
good for them, 13 percent say they will be mostly bad, 24 percent
say they won’t make much difference and 28 percent are unsure.
- Investors earning $90,000 or more are
especially likely to say the personal income tax changes will
benefit them, with 42 percent saying the impact of the changes will
be mostly good versus 14 percent who say the impact will be mostly
bad. By contrast, 29 percent of those making less than $90,000 say
the changes will be good for them and 15 percent say they will be
mostly bad.
- Thirty-six percent of investors say the
changes will be mostly good for the country as a whole, and 25
percent say they will be mostly bad. The rest say they will make no
difference (9 percent) or are unsure (30 percent). Slightly more
say the new income tax law will be mostly good for the stock market
(41 percent) and for job creation (42 percent).
- Meanwhile, more investors say their
personal income taxes have already gone down as a result of the law
(25 percent) than say they have gone up (8 percent). The percentage
already seeing a cut in their federal income taxes is higher among
non-retired (28 percent) than retired (16 percent) investors.
On corporate taxes:
- Fifty percent say the corporate tax
cut’s effect on the market will be mostly good, and 9 percent say
it will be mostly bad.
- Forty-four percent of investors say the
corporate tax cut will be mostly good for job creation, 40 percent
see benefits for the country as a whole and 34 percent see benefits
for themselves personally.
- One way the corporate tax cut could
benefit investors is if corporations pass some of their tax savings
on to employees, such as through pay increases or one-time bonuses.
Roughly four in 10 investors who are currently employed by a
corporation (39 percent) say their company already has or will
provide such a benefit to its employees.
Investors unlikely to capitalize on after-tax savings
opportunity
When asked whether, under the new tax plan, investors now are
more likely to save for their retirement using pre-tax or after-tax
investments, the majority says their strategy won’t change (57
percent). In addition, slightly more say they will focus more on
pre-tax (19 percent) than after-tax (12 percent) investments.
“Today’s low tax rates may make saving in after-tax investments
such as Roth IRAs or Roth 401(k) plans a better choice for some
investors than focusing exclusively on pre-tax investments like a
traditional 401(k) or IRA,” said Ready. “This is using the
assumption that an investor’s personal income tax rate may be
higher by the time they retire.”
One reason few investors are contemplating switching to
after-tax accounts could be that just 25 percent of non-retired
investors say they are “very familiar” with the difference between
traditional and Roth retirement accounts. Another 36 percent say
they are “somewhat familiar.” About a third (32 percent) say they
are not too or not at all familiar.
“By not making greater use of after-tax retirement accounts
under the new tax law, people may miss out on a valuable
opportunity to improve their tax diversification strategy, with
after-tax Roth accounts providing tax-free income in retirement,1”
said Ready.
Planning for retirement
Although improved from four years ago, relatively few investors
— 34 percent today versus 26 percent in 2014 — say they are highly
confident they will have enough money to maintain the lifestyle
they want throughout their retirement. Twenty-eight percent of
non-retired investors, compared with 48 percent of retired
investors, are highly confident about this.
The poll also asked non-retired investors how much thought they
have given to seven different aspects of retirement. At the top of
the list: Non-retired investors are most likely to have thought
about how they will spend their leisure time in retirement — 53
percent have thought “a lot” or “a fair amount” about this.
Following is the full list of retirement-related topics about
which people have given a lot or a fair amount of thought:
- How to spend leisure time: 53
percent
- Where they will live: 48 percent
- The best age to take Social Security:
45 percent
- Paying for routine medical care: 45
percent
- Strategy to draw income from retirement
accounts: 41 percent
- How they will pay for long-term care or
assisted living: 37 percent
- The amount of taxes they will pay in
retirement: 34 percent
“The fact that about half of people haven’t given serious
thought to their future taxes, healthcare expenses, draw-down
strategy or Social Security could explain why only a third of
investors are highly confident about their retirement savings,”
said Ready. “The act of thinking through these important drivers of
retirement outcome can help inform people about their financial
preparedness for retirement.”
Non-retired female investors are more likely than male investors
to have thought “a lot” or “a fair amount” about paying for
long-term and routine medical care. Men are more likely than women
to have thought about their draw-down strategy.
About the Wells Fargo/Gallup Investor and Retirement Optimism
Index
These findings are part of the Wells Fargo/Gallup Investor and
Retirement Optimism Index, conducted Feb. 2–25, 2018, by telephone.
The index includes 1,321 investors, aged 18 and older, randomly
selected from across the U.S. with a margin of sampling error of
+/- 3 percentage points. For this study, the American investor is
defined as an adult in a household with total savings and
investments of $10,000 or more. About two in five U.S. households
have at least $10,000 in savings and investments. The sample
size consists of 71 percent non-retirees and 29 percent
retirees. Of total respondents, 36 percent reported annual
incomes of less than $90,000; 64 percent reported $90,000 or more.
The Wells Fargo/Gallup Investor and Retirement Index is an enhanced
version of Gallup’s Index of Investor Optimism, which provides the
historical trend data. The median age of the non-retired investor
is 47 and the retiree is 69.
The Index of Investor Optimism had a baseline score of 124 when
it was established in October 1996. It peaked at +178 in January
2000, at the height of the dot-com boom, and hit a low of -64 in
February 2009.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified,
community-based financial services company with $2.0 trillion in
assets. Wells Fargo’s vision is to satisfy our customers’ financial
needs and help them succeed financially. Founded in 1852 and
headquartered in San Francisco, Wells Fargo provides banking,
investments, mortgage, and consumer and commercial finance through
more than 8,300 locations, 13,000 ATMs, the internet
(wellsfargo.com) and mobile banking, and has offices in 42
countries and territories to support customers who conduct business
in the global economy. With approximately 263,000 team members,
Wells Fargo serves one in three households in the United States.
Wells Fargo & Company was ranked No. 25 on Fortune’s 2017
rankings of America’s largest corporations. News, insights and
perspectives from Wells Fargo are also available at Wells Fargo
Stories.
About Gallup
Gallup delivers analytics and advice to help leaders and
organizations solve their most pressing problems. Combining more
than 80 years of experience with its global reach, Gallup knows
more about the attitudes and behaviors of employees, customers,
students and citizens than any other organization in the world.
1 Qualified Roth IRA distributions are not subject to state and
local taxation in most states. Qualified Roth IRA distributions are
also federally tax-free provided a Roth account has been open for
at least five years and the owner has reached age 59 ½ or meet
other requirements. Withdrawals may be subject to a 10% Federal tax
penalty if distributions are taken prior to age 59½. Wells Fargo
and its affiliates do not provide tax or legal advice.
Wells Fargo Institutional Retirement & Trust is a business
unit of Wells Fargo Bank, N.A, a bank affiliate of Wells Fargo
& Company.
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MediaLeslie Ingberg,
612-667-0265Leslie.Ingberg@wellsfargo.com
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