Following the deficit and unemployment, investors cited the price of energy at 60%, closely followed by “the financial position of state and local governments” at 58% as factors that are hurting the investment climate “a lot.” A majority (51%) of investors cited “a politically divided federal government” as a factor, surpassing concerns about home price values (46%) and the availability of credit (38%).
Overall investor optimism has recovered from the depths of the recession in 2008-2009, yet remains well below pre-crisis levels, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index. As pensions are increasingly replaced by self-funded 401(k) plans for working Americans, the index shows retired Americans are twice as optimistic as the non-retired.
Rising to 42 in February, the Index is up sharply from its all-time low of negative 64 in February 2009, just before the markets reached bottom, but significantly trails the pre-recession score of 90 in February 2007. The Index is based on the results of seven core questions that were asked during telephone interviews conducted by Gallup with 1,007 investors aged 18 and older from Feb. 1 through Feb. 8, 2011.
Gallup began its Investor Optimism Index in October 1996. The February Index marks the start of a Wells Fargo/Gallup partnership to release findings quarterly and to break out indices to show optimism levels for the retired and non-retired. Based on the February data, retirees evidence a score of 61, nearly twice the optimism levels of the non-retired at 35. The mean age of the retired is 69 and the mean age of non-retired is 46.
“As the fourth largest banking institution in the U.S., it is important for us to gauge the issues affecting investor sentiment and it is interesting to see how Federal, state and local budget concerns are now affecting our investment climate,” said David Carroll, Senior Executive Vice President and head of Wells Fargo Wealth, Brokerage and Retirement. “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.”
Despite their concerns, 62% of investors say now is a good time to invest in the financial markets.
A Tale of Two Retirement Futures in the U.S.
The poll asked a series of questions that show how working Americans will fund their retirement - in contrast to today’s retirees - and found dramatic differences between the retired and those yet to retire:
- Nearly three-fourths (74%) of the non-retired say the 401(k) will be a major source of retirement funding for them, compared to 38% of the retired.
- Only 28% of non-retirees expect Social Security to be a major retirement funding source, compared to 48% of retirees.
- Pensions were listed as major funding sources by 49% of retirees, versus 39% for non-retirees.
While the poll results suggest many Americans see retirement as the individual’s responsibility, only a small proportion has created a written retirement plan to fulfill that responsibility. About a quarter (23%) of the non-retired respondents 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. “We see the complexity and to some extent the stress of living life and planning for retirement as factors in reducing optimism.”
Despite differences in funding for retirement, both the non-retired and retired show similar levels of waning confidence in the stock market as a place for retirement investing: 61% percent of the non–retired say they have either “some confidence” or “little confidence” in the market for retirement investments as compared to 59% of the retired. More than a tenth (11%) of the non-retired say they have “no” confidence in the markets as compared to 16% of the retired.
There are stark differences in the way retirees and non-retired Americans view their ability to achieve common retirement objectives. Among retirees, 61% have a “great deal” or “quite a lot” of confidence that they will be able to fund their healthcare needs in retirement beyond what Medicare covers, compared to only 35% of non-retirees. Similarly, while 62% of retirees are confident they are able to maintain their lifestyle in retirement without working, only 40% of non-retirees think they will be able to do so.
