Data & Research April 6, 2017

Even the Very Wealthy Worry About Funding Retirement

Twenty percent of those with a net worth of $5 million or more worry they will have enough money to last them in retirement.
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Twenty percent of ultra high net worth (UHNW) people, those with a net worth of $5 million to $25 million, and senior corporate executives worry about having enough money to last them throughout their retirement, according to a Spectrem study, “Financial Behaviors and the Investor’s Mindset.” This group is also concerned that they may not be able to retire when they want to.

Nonetheless, 67% of UHNW people say they are better off financially than they were a year ago. In lockstep with this, 61% of people with a net worth of $1 million share this optimism, along with 53% of mass affluent people with a net worth of $100,000 or more.

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A large percentage of UHNW people think that the age for receiving full Social Security benefits should be raised, with many of them indicating it should be raised by several years. Fifty-six percent of the mass affluent think that people earning $300,000 or more a year should not be eligible for Social Security.

A large percentage of the people across all three wealth segments think that the Federal government should forgive student loan debt.

Asked how they attained their wealth, 58% of UHNW investors said it was luck—being in the right place at the right time.

“Advisers can use this information to customize investment recommendations to fit the unique financial concerns and personal situations of their clients,” says Spectrem President George Walper.

The Markets April 6, 2017

U.S. Pension Plans Look to the Canadian Model

Canadian pensions do a good job of keeping costs down, diversifying and using alternative investments.
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Given the rising Pension Benefit Guaranty Corporation (PBGC) premiums and persistently low interest rates, many U.S. pension plans have been adapting some of the practices of what Cerulli Associates call The Canadian Model.

The Model is centered around three attributes, according to Cerulli: cost mitigation, a well-diversified investment portfolio across several asset classes and geographies, and a large appetite for illiquid investments.

While the Canadian pension market is considerably smaller than the U.S. pension market—$1.2 trillion in assets compared to $6 trillion—the top 10 Canadian pension plans account for 45% of the market, compared to the top 10 U.S. pension plans accounting for just 22%. As a result, Cerulli says, Canadian pension plans are very sophisticated.

While U.S. pension plans typically turn to outside investment managers, Canadian pension plans handle a great deal of their investing in-house, thus lowering costs even though they pay their investment managers more than U.S. pension plans do, according to Cerulli.

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Canadian pension plans are also very well diversified, Cerulli found. For instance, the Ontario Teachers’ Pension Plan has 46% of its assets invested in equities, but only 2% in Canadian equities, as well as 23% in bonds. The fund is also invested in a variety of alternative investments and borrows in the money markets to help fund other investments.

Cerulli says that given the long-term horizon of pension plans, they can afford to invest in illiquid alternatives, which also provide returns not correlated to other investment classes. In addition, some alternatives, such as infrastructure, can provide steady cash flows, which are very beneficial to pensions as they provide retirees with income.

In addition, Cerulli says, “Many plan sponsors are keeping a close eye on President Donald Trump’s much-anticipated infrastructure plan. While many of the details surrounding the plan are unknown, some suggest new opportunities for infrastructure will arise.”

Cerulli’s complete report, “The Canadian Model for Defined Benefit Pension Plan Management,” can be purchased here.

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