The Markets June 7, 2017

The Callan DC Index Posted Strong Gains During First Quarter 2017

The growth of 4.67% is the highest quarterly bump for the index since the end of 2013.
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The Callan DC Index, which represents 90 large defined contribution plans with $150 billion in assets, rose 4.67% in the first quarter—its largest return since the end of 2013.

However, the age 45 target-date fund (TDF) rose 5.57% in the quarter. Callan says TDFs tend to outpace the index because it does not have as high an exposure to equities as TDFs. The age 45 TDF has 76% of its assets allocated to equities, whereas the index has only 69%, Callan says.

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During the quarter, plan balances rose 4.74%, with the majority of that increase, 4.67%, due to the market performance and only 0.07% due to contributions.

The only equity class to see inflows during the quarter was emerging market equities, which had 1.95% of inflows. 

Target-date funds took in 88 cents of every dollar that was invested in DC plans in the first quarter. TDFs now account for nearly one-third, 32%, of plan assets. The next biggest fund holding is U.S. large cap equity funds, which account for 23% of plan assets, according to Callan.

Only 0.42% of assets in DC plans were exchanged for other investments, below the 0.64% historical average.

Full details of the Callan DC Index can be viewed here.

Data & Research June 6, 2017

Americans Lacking Confidence in Retirement Savings

A new report by the Spectrem Group finds that several Americans lack confidence in saving properly for retirement, with the most concerned belonging to the Baby Boomer generation. 
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Even though the U.S. is experiencing a nearly eight-year strong bull market, which has seen financial markets climb in value by more than 300%, a large portion of investors worry about saving enough for retirement. That’s the conclusion drawn from a recent survey by Spectrem Group.

The firm’s study “Financial Behaviors and the Participant’s Mindset” found that 43% of respondents say they expect to have less than $500,000 saved for retirement. Only 20% think they’ll put away $1 million to $2 million, and just 5% think they’ll have more than $5 million saved.

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The majority of Millennials, however, are confident about their potential nest eggs. The survey found that more than half (60%) anticipate saving between $500,000 and $1 million.

Still, some research suggests that Millennials are overly hopeful about retirement. On the other hand, those closest to retirement appear the least confident about generating enough income in that phase. According to the report, more than half (56%) of Baby Boomers expect to have less than $500,000 in retirement. When adding in World War II-era investors, the figure jumps to 91%.

The reasons why participants are generally pessimistic about retirement savings are varied. Such reasons range from concerns over market volatility and current tax pressure to increasing health care costs. The firm found that 71% of respondents believe they pay too much in taxes. And while 75% think wealthier citizens should have the larger tax burden, 46% say they would like to see a flat tax rate levied on all citizens.

Managing health care costs in the future, however, seems to be the biggest obstacle to retirement saving. More than half (74%) believe this is a major issue.

To address that issue, plan sponsors and providers have been turning to integrating retirement planning and health care planning by utilizing different resources such as health savings accounts (HSAs).

Plan participants concerned about health care costs also worry about depleting their retirement savings. Less than half (48%) worry about paying too much in taxes or spending too much once they retire, the report says.

Information about downloading the full report can be found on Spectrem.com.

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