Data & Research November 15, 2011

California Claims Top Three Cities in Retirement Readiness Index

Many residents of the largest metropolitan areas in the U.S. report feeling significantly less confident than they did a year ago about their retirement readiness.
Reported by

Ameriprise Financial’s “New Retirement Mindscape 2011 City Pulse Index,” examined the 30 largest U.S. metropolitan areas to determine where consumers are the most prepared for and confident about retirement. The Index also tracks national and local retirement trends over time.

While three quarters (75%) of Americans say they’ve taken steps to prepare financially for retirement, the economic uncertainly that has persisted over the past year appears to be taking a toll on people’s emotions. A mere 18% of consumers surveyed across the U.S. say they believe they’ll achieve their dreams in retirement, down significantly from 21% who shared this sentiment in 2010. Likewise, when asked how they feel about this stage of life, more Americans express negative feelings than they did last year, including the number who say they feel worried (24% vs. 21%), anxious (21% vs. 17%) and depressed (10% vs. 8%) when they think about retirement.

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These increasing levels of skepticism may help explain why fewer people report planning for the activities they’ll pursue during retirement. With rising health care costs and the continuing national debate around the topic, it is surprising that the number of Americans who are making plans to ensure they remain healthy has declined (51% vs. 55%). The number who report planning to spend more time with family (37% vs. 41%), travel (23% vs. 26%), decide which hobbies to pursue (19% vs. 21%), volunteer (13% vs. 15%) and continue their education (10% vs. 13%) has also dropped significantly.

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“A bit of pessimism is understandable considering that the financial markets have been highly volatile, unemployment remains high and many have seen the value of their homes continue to decline,” said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “While all these issues can make focusing on retirement difficult, they also underscore the need for careful planning that doesn’t just take in account the things you can control, but also factors in the impact of those you can’t.”

The 30 metropolitan areas that were surveyed were ranked as follows:

1.  San Francisco-Oakland-San Jose

2.  Sacramento-Stockton-Modesto

3.  San Diego                   

4.  St. Louis

5.  Portland

6.  Hartford-New Haven

7.  Dallas-Ft. Worth

8.  Los Angeles

9.  Orlando-Daytona Beach-Melbourne

10.  Philadelphia

11.  Chicago

12.  Pittsburgh

13.  Tampa-St. Petersburg

14.  Seattle-Tacoma

15.  Houston

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16.  Denver

17.  Phoenix

18.  Minneapolis-St. Paul

19.  Raleigh-Durham

20.  Detroit

21.  Baltimore

22.  Charlotte

23.  Boston

24.  Miami-Ft. Lauderdale

25.  Washington, DC

26.  Nashville

27.  Cleveland-Akron

28.  Atlanta

29.  New York City

30.  Indianapolis

The Retirement Mindscape index was created by Ameriprise Financial with survey responses from 11,611 U.S. adults ages 40-75. The survey was commissioned by Ameriprise Financial, Inc. and conducted online by Harris Interactive from August 4-12, 2011.  

The Markets November 15, 2011

Plan Sponsors May Have False Security with TDFs

Defined contribution (DC) plan sponsors claim to have a higher level of confidence regarding their target-date fund offerings compared to a year ago, according to Janus Capital Group. 
Reported by

Despite the sense of confidence in target-date funds (TDFs), the data also revealed contradictory responses among a significant percentage of sponsors who are unaware or unconcerned about areas that could present fiduciary risk.

The survey shows that half of all plan sponsors are “not at all concerned” about litigation regarding target-date glide paths, yet more than 50% admitted they were not sure what their fund’s glide path is. Despite the high level of glide path uncertainty, nearly 70% of plan sponsors said they are confident their employees understand the structure and intent of TDFs.

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Almost 80% of all sponsors do not monitor (or are not sure if they do), the duration of their target-date funds’ fixed income allocation.
Sixty-eight percent of all plans have a TDF, yet only 45% said a target-date fund is the best qualified default investment alternatives (QDIA) option for their employee population.
Nearly 40% of plans that have both target-date funds and an investment policy statement (IPS) do not include language in the IPS pertaining to target-date funds and their underlying funds.

“The evolution of target-date funds continues at a brisk pace, and many good and valuable refinements will undoubtedly follow in the coming years,” said Russ Shipman, senior vice president and managing director of Janus’ Retirement Strategy Group. “With Baby Boomers’ laser-like focus on retirement income, we believe interest rate risk within the fixed income allocations of target-date funds will soon get much-deserved air time and scrutiny. Just as equity bets drove material differences in 2010-dated products during the 2008 market swoon, so too could ill-advised fixed income duration profiles for near-dated target-date fund offerings in a rising rate environment.”

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The survey also revealed that balanced funds are perceived by plan sponsors as the best QDIA option for investment transparency and lower fees, and are on-par with target-date funds as the best choice for overall performance. While almost half of respondents indicated target-date funds are the best QDIA for their employee populations, balanced and target-risk funds were the combined second choice, with 20% of respondents indicating that these products are the best option. Additionally, 22% of plans said they would be willing to replace their target-date funds with balanced or target-risk funds to eliminate the “to” or “through” glide path dilemma.

“The affinity for target-date funds is justifiably broad and deep, but future generations of the products may continue to see increased pressure from balanced funds,” said Shipman. “Given balanced funds’ simplicity and proven track records, we have observed plan sponsors, both big and small, routinely selecting them as a QDIA.”

The survey, which has been conducted annually for five years in conjunction with Asset International, Inc., focuses on QDIA fund selection, construction, monitoring and satisfaction. It reflected comments from a cross-section of nearly 7,000 DC plan sponsors from a wide range of industries across the country, with strong representation from the large and mega plan segments. The survey was conducted via an online questionnaire from July to September 2011. 

 

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