Data & Research September 27, 2010

Key to Retirement Confidence is Working with a Pro

In a study released by Ameriprise Financial, “New Retirement Mindscape II,” researchers found that pre-retirees working with a financial adviser are taking many more steps to prepare for retirement than those who are flying solo.
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Being confident with financial security in retirement is a highly sought after feeling, which unfortunately, not many Americans have. In its survey, Ameriprise found that 68% of pre-retirees working with a financial adviser are confident in reaching their retirement goals, and 39% of pre-retirees who are not working with an FA are confident about their plan.   

For those who are already working with an adviser, the study found that pre-retirees were more likely to be setting aside money in an employer-sponsored plan (84% versus 66%) or in their own savings and investments (91% versus 60%). Pre-retirees working with a financial adviser are also more likely to have made the crucial step to figure out the amount of money they need to save for retirement (68% versus 44%).

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Ameriprise also found that those with a written financial plan have even greater level of confidence that they are “on track” with their retirement plan–75% versus 40%. Compared to those without a plan, more pre-retirees are also more likely to say they are actively saving than their peers, including setting aside money for retirement in an employer-sponsored plan (85% versus 66%) and in their own savings and investments (93% versus 61%). 

Retirees who worked with a financial adviser are more likely to feel they are “living their dream” in retirement (53% versus 36%) and that their retirement “worked out the way they planned” (68% versus 49%) than those who did not.

The Markets September 27, 2010

Vanguard to Change International Holdings in Target-Date Funds

Vanguard plans to simplify the construction of its Target Retirement Funds and certain other funds-of-funds by replacing three underlying international portfolios with a single broad international stock index fund.
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Assets in the funds’ current international component funds—Vanguard European Stock Index Fund, Vanguard Pacific Stock Index Fund and Vanguard Emerging Markets Stock Index Fund—will be moved to Vanguard Total International Stock Index Fund. The transition will occur in the coming months in the 12 Vanguard Target Retirement Funds and three Vanguard Managed Payout Funds, according to a press release.  

Under the simplified approach, most of the Target Retirement Funds will comprise three broad index funds: Vanguard Total Stock Market Index Fund, Vanguard Total Bond Market II Index Fund, and Vanguard Total International Stock Index Fund.  

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Vanguard said the use of Vanguard Total International Stock Index Fund offers better representation of the international equity markets. The fund’s benchmark, which Vanguard recently announced will change to the MSCI All Country World ex USA Investable Market Index (see Vanguard Switches International Fund Benchmark), provides broad coverage of developed and emerging countries across the capitalization spectrum, including international small-cap companies, as well as Canada.   

Vanguard also announced it plans to increase the international equity exposure of Vanguard Target Retirement Funds, Vanguard LifeStrategy Funds, and Vanguard STAR Fund from approximately 20% to approximately 30% of the equity allocations. The exposure to domestic equities in these funds will be commensurately reduced, so that the overall allocation of stocks and bonds remains the same.  

“This increased international allocation will incrementally increase diversification and hence, marginally reduce the volatility of the funds over the long term,” said Vanguard Chief Investment Officer Gus Sauter, who noted that the new weightings will also reduce the “home bias” of the funds. 

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