Data & Research March 28, 2013

Older Employees Delaying Retirement

Older employees are delaying their retirement, says a survey from human resources and financial services firm Mercer.
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“Mercer Workplace Survey 12” tracked employee attitudes toward, and experiences with, employer-sponsored retirement, health and benefits programs. While younger employees were cautiously optimistic about the recovery of the economy, nearly six in ten (59%) older employees expected to delay their retirement date, up four points from the previous year.

Related to this were findings on perceived job security. While the number of employees concerned about losing their job dropped to 36%, this shift masks an age differential, according the survey, with the decline concentrated entirely among workers under the age of 50. For those age 50 and over, concern about job security rose two points from the previous year to 36%.

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With regards to saving for retirement, the survey found a resurgence of such efforts. Employees expect to increase their 401(k) contributions this year. Overall, employees expect to increase their contributions by 7% to just under $8,000. Again, though, employer 50 and older are concerned about retirement and finances. They expect to increase their contributions by 19% to just over $8,200. For this group, the number of employees who plan to max out their 401(k) contribution in the year ahead nearly doubled (to 13%).

In terms of confidence about investment decisions, the survey found that compared to the previous year, employees overall were less confident about their asset allocation (78%, down seven points), fund selection (78%, down five points) and contribution levels (73%, down three points).

Ironically, this dip in confidence comes in the face of employees having greater access to investment advice within their plans, according to the survey. Access to live in-person or telephone advice actually increased eight points from the previous year. Yet the proportion of all employees (both those with and without current access to in-plan advice) who would be willing to pay a fee for advice offered through their plan is down seven points to 30%.

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All of this leaves employees a little less sure of themselves this year than last when it comes to key measures of retirement planning confidence—down marginally on five of six trended metrics, including knowing how to calculate how much money they will need in retirement and being financially ready for retirement.

It also leaves them in a somber mood with respect to the proportion of their current income they are targeting to replace in retirement, says the survey. At 78%, this level is six points lower than the previous year and is only the second time since 2006 that employees’ targeted replacement ratio has dipped below 80%.

Overall, according to the survey, employees have a mixed outlook for the quality of their retirement.

The survey was conducted online during June 2012. It was based on a national cross-section of participants contributing to a 401(k) plan, irrespective of balance, or having a 401(k) balance of $1,000 or more, whether or not they are currently contributing. The survey results can be found here.

The Markets March 28, 2013

Continued Recovery to Power Equities in 2013: Doll

Strengthening of the U.S. economy makes a case for expanding equity exposure, a PLANADVISER keynote speaker said.

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NEW YORK—“The U.S. and global economy is improving slowly and unevenly,” Bob Doll, chief equity strategist at Nuveen Investments, said at PLANADVISER’s 2013 Top 100 Retirement Plan Advisers seminar here Wednesday. “Equity markets have had double-digit increases for four years—and we are planning for a fifth year,” Doll said in his keynote presentation, “Building Retirement Portfolios: Real World Considerations for Advisers Now.”

“Current conditions are pretty ideal: low inflation, continued liquidity from the Fed, and below-trend growth. This is the sweet spot,” Doll said.

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“U.S. consumers are doing OK —not great, but good enough. They’ve seen 3.3% real-wage growth in the past 12 months, the strongest it’s been since the Great Recession. Stocks are at an all-time high, fixed income is enjoying strong returns, and housing prices are rising. This is causing consumers to continue to spend in the face of a $170 billion tax increase at the beginning of the year, and a 50­-cent [per gallon] increase in gas prices.”

Perhaps more crucially, Doll noted, “The consumer balance sheet has massively improved, due to paying down debt, writing off debt and a decline in interest rates. Yes, employment growth could be better and more people could be staying in the workforce [instead of giving up on searching for a job]. Corporations are experiencing very good growth, as measured by free cash flow and debt-to-equity ratios. In fact, corporations are healthier than any time since the 1950s.”

The big and lingering question, Doll said, is: Will corporations spend their cash? “They are likely to spend more in 2013 than in 2012—on workers, capital, dividends, buying back shares, and mergers and acquisitions,” he said.

 

“But risks remain,” Doll cautioned, most notably political stalemate in Washington to manage the $16 trillion government deficit and the annual 10% increase in the cost of the Social Security, Medicare and Medicaid entitlement programs. At the end of the day, the government will continue to issue debt to cover these costs, Doll predicted. While this will keep the U.S. from falling over the fiscal cliff, “debt deleveraging is also a risk factor and will be a headwind to growth.”

Still, Doll is forecasting U.S. GDP growth of 6% in 2013, up from 2% in 2012, and he counseled advisers to encourage plan participants to increase their equity exposure. This won’t be an easy task, however, Doll said: “People are as bearish on stocks as they have ever been. We are living on the edge of our seats because of the memory of the bursting of the biggest bubble we have ever seen, and that makes people nervous.”

Nonetheless, Doll maintained, advisers need to drive home the point with their clients that “the world is slowly healing.” Thus, he said, “In the equity market, I want to be overweight in areas  that will grow over the next three to five years, namely emerging markets and the U.S. I prefer cyclical stocks to defensives: industrials, energy, materials and technology.

“We believe positive signs have emerged,” Doll concluded. “As a result, investors may be ready to put cash to work and move into higher-risk areas. And should the U.S. become energy independent through natural gas, that would be a huge plus.”

 

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