The Markets June 13, 2017

Retirement Savers Share Outlook on Interest Rate Environment

Wells Fargo released its Retirement Optimism Index, which offers insight into what retirees and non-retirees think about the current interest rate environment and what’s to come.
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The Federal Reserve has raised interest rates twice since last year and many analysts expect that trend to continue, but many retirement savers see no immediate impact on their finances. According to the Investor and Retirement Optimism Index by Wells Fargo and Gallup, most respondents (66%) say the recent hikes have had no impact on investments, loans or any other aspect of their finances.

Still, the index reveals some disparities on perceptions of the interest rate environment among retirees and non-retirees. For those that did see some impact, 16% of retirees said it was positive. Only 9% of retirees said it was negative. As for non-retirees, 12% said it was positive and 17% said it was negative.

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More than half (60%) of retirees are satisfied with current interest rates, as are 60% of non-retirees. Twenty-nine percent of non-retirees are dissatisfied, and 37% of retirees feel the same way.

When asked whether they felt they had a good understanding of how higher interest rates would affect stock investments, most respondents had an optimistic response. More than half of retirees (77%) and non-retirees (76%) said they did. Only 16% of retirees and 23% of non-retirees indicated they were not aware of how these market forces affected their stock investments.

Answers varied when asked which situation would reflect positively on investments. Thirty-nine percent of retirees preferred a high interest rate environment, and 21% of non-retirees said the same thing. More than half (52%) of retirees said a low-interest environment would be better for their financial situations and 76% of retirees agreed.

“Whatever your age, low rates can hurt savers,” says Brian Rehling, co-head of Global Income Fixed Income Strategy, Wells Fargo Investment Institute. With rising rates, the inertia among investors to stick with their investments shows that they may be more comfortable with the risks in the stock market. However, the lack of meaningful rate and/or credit shocks in recent years may have given some investors a false sense of security.”

In response, most investors (67%) said they will make no changes to their investments if interest rates continue rising. However, 23% said they would take money out of stocks and into interest-bearing accounts or investments such as certificates of deposit (CDs). Twenty-four percent of non-retirees and 19% of retirees said they would do this.  

Client Service June 13, 2017

Confidence in Retirement Does Not Match Savings Actions

Competing financial priorities are keeping people from saving for retirement what they know they should, a survey finds.
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Lincoln Financial Group’s 2017 Lincoln Retirement Power Participant Study showed that while most individuals are confident and optimistic about retirement savings, the majority of participants acknowledge they are not saving as much as they think they need to in order to meet their retirement savings needs. The study shows that competing financial priorities are the culprit creating this conundrum of confidence.

In 2012, when Lincoln Financial conducted the first Retirement Power study, only 29% of respondents reported being confident, and 45% said they were optimistic about their retirement savings. This year’s study found 39% of respondents say they feel confident, and more than half (55%) are optimistic.

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Two-thirds of retirement plan participants understand that they should be saving at least 10% of their salary to stay on track, and 45% believe they need to save 15% or more. However, only four in 10 savers are saving as much as they think is necessary, and among the savers who are saving less than what they think they need, the majority (68%) would need to increase their savings by 5% or more to be on track.

The more competing priorities a participant reports, the less money they contribute to their retirement plan, according to the survey. Only 36% of individuals with eight or more competing priorities are contributing 10% or more to their retirement plan, but of those who have two or fewer priorities fighting for a share of their wallets, 59% are contributing at least 10%, and 40% are putting 15 percent or more away for retirement.

Student loan debt has a major impact on retirement savings, no matter how many other competing financial priorities a participant reported. Six out of ten people with student loan debt said it is keeping them from saving more for their retirement.

“Savers today face many financial pressures and the reality is that the majority of them are going to be responsible for their own retirement,” says Jamie Ohl, president, Retirement Plan Services, Lincoln Financial Group. “As an industry, we have helped people understand the importance of saving. Now, it’s up to us to help them save more so they can achieve the retirement they envision.”

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