Are Your Retirement Savings Half Full or Half Empty?

Whether an investor is a pessimist or optimist might also indicate how prepared he is for retirement, according to research from Fidelity Investments.

Fidelity said it found that investors with a more pessimistic outlook are less likely than those with a more optimistic outlook to expect a comfortable lifestyle in retirement (61% of pessimists, 83% of optimists). They are also more likely to be concerned about risks to their retirement income, such as Social Security benefits being reduced (45% of pessimists, 33% of optimists).

Despite financial concerns, only 15% of pessimists have completed a detailed income plan to help guide their finances in retirement, compared to nearly twice as many optimists (27%), according to the survey.

“Going into the study, we anticipated that individuals with a more pessimistic outlook may be motivated by their concerns to proactively plan for retirement,” said Joan Bloom, executive vice president, Fidelity Investments Life Insurance Company. “We were surprised, however, to find the opposite—that pessimists’ concerns are not driving action that could help improve their financial situation and overall confidence levels.”

The results also show pessimists are less likely than optimists to take on risk with their investments, especially in relation to the ongoing market uncertainty. Pessimists are twice as likely as optimists (25% of pessimists, 12% of optimists) to invest with the goal of preserving money and will accept considerably lower returns, while optimists are more likely to invest with the goal of creating an equal balance of capital preservation and investing for returns (39% of optimists, 25% of pessimists).

When asked about their initial reaction to the recent market volatility, twice as many pessimists as optimists reported “feeling a sense of panic and wanting to pull out of the market” (22% of pessimists, 11% of optimists), while significantly more optimists than pessimists said their gut feeling was to “stay the course” (77% of optimists, 57% of pessimists).

However, Fidelity found that product ownership is similar among both groups for the following products:

  • 401(k)s  (88% of pessimists, 89% of optimists);
  • Individual Retirement Accounts (77% of pessimists, 79% of optimists);
  • annuities (48% of pessimists, 46% of optimists);
  • pensions (75% of pessimists, 71% of optimists).

When asked which account they planned to rely on most in retirement, both optimists and pessimists name their 401(k)s as the most important retirement product (15% of pessimists, 22% of optimists) followed by their personal pensions (13% of pessimists, 17% of optimists).

Optimistic Couples More Financially Prepared

In addition to showing the impact one's level of optimism or pessimism might have on his or her own retirement planning, research from Fidelity provides some insight into the impact it may have on a married couple's financial preparedness.

According to Fidelity, pessimists are less likely than optimists to report that both they and their spouse have wills prepared (52% of pessimists, 62% of optimists). In addition, pessimists are more likely than optimists to rely on their spouse to know where such important papers are kept (13% of pessimists, 9% of optimists).

Among married couples, pessimistic spouses are less confident in their ability to assume full financial responsibility for their joint household finances if necessary, while fewer optimists worry about this issue (61% of pessimists, 39% of optimists).

Fidelity said an individual's outlook might also be effecting the level of communication with his or her partner. While the majority of both groups reported they "always discuss important matters, such as a job layoff, with their spouse," pessimists are less likely to do so than their optimistic counterparts (91% of pessimists, 98% of optimists). A larger number of pessimists also reported arguing with their spouse about financial matters, with more than half (55%) saying they argue occasionally or frequently, compared to 39% of optimists who say so.

"Our research shows that in 89% of couples, one partner is generally more optimistic than the other, and the more optimistic they are, the more involved they are in the retirement decisionmaking process," said Bloom.

The findings are part of an analyses of the optimism level and retirement planning behaviors of more than 1,000 husbands and wives who participated in Fidelity’s 2009 Couples Retirement Study (see "Couples Show Little Financial Confidence in Each Other").