Confidence in Ability to Afford Retirement Remains Low

The 22nd annual Retirement Confidence Survey (RCS) finds that Americans’ confidence in their ability to afford a comfortable retirement is stagnant in the face of more immediate financial concerns.

At the same time, the percentage of workers saving for retirement continues its gradual decline, and many remain uncomfortable using new technologies to help them manage their finances, according to the Employee Benefit Research Institute (EBRI). 

Retirement Confidence 

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Fourteen percent of workers continue to be very confident about having enough money for a comfortable retirement (statistically equivalent to the 13% measured in 2011), and 38% are somewhat confident. Twenty-three percent are not at all confident (down slightly from 27% in 2011). 

Retiree confidence in having a financially secure retirement is also stable, with 21% very confident (statistically equivalent to the 24% measured in 2011) and 19% not at all confident (statistically equivalent to the 17% in 2011). 

Many workers have more immediate worries than saving for retirement. Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today, and just 28% are very confident that they will have paid employment for as long as they need it.  

Almost two-thirds (62%) of workers consider their current level of debt to be a problem. Only 16% are very confident that their investments will grow in value. These concerns all show a relationship with retirement confidence. 

Both workers and retirees continue to express higher levels of confidence about their ability to afford basic expenses in retirement than to pay for post-retirement medical or long-term care expenses. Twenty-six percent of workers and 32% of retirees are very confident about having enough money to pay for basic expenses, but just 13% of workers and 24% of retirees are very confident about paying for medical expenses after retirement. Even fewer—9% of workers and 18% of retirees—are very confident about having the financial wherewithal to pay for long-term care in retirement.

 

Preparing for Retirement 

Two-thirds (66%) of workers report they and/or their spouses have saved for retirement, a continuing decline from the three-quarters (75%) measured in 2009. Fifty-eight percent say they and/or their spouse are currently saving (continuing the decline from 65% in 2009). However, these decreases are concentrated primarily among workers with household income under $35,000. 

As previous waves of the RCS have found, a sizable percentage of workers report they have virtually no savings and investments. Among RCS workers providing this type of information for the 2012 RCS, 30% say they have less than $1,000. In total, 60% of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. 

Many workers continue to be unaware of how much they need to save for retirement. More than half (56%) report they and/or their spouse have not tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. 

When workers are asked to evaluate their progress in planning and saving for retirement, 67% state that they are a little or a lot behind schedule. Although unchanged from 2011, this is 12 percentage points higher than the 55% of workers who felt they were behind schedule in 2005. 

The survey was conducted in January 2012 through 20-minute telephone interviews with 1,262 individuals (1,003 workers and 259 retirees) age 25 and older in the U.S. 

More information is available at http://www.ebri.org.

 

Mutual Funds See Best Monthly Inflows in Two Years

Investors put an estimated $46 billion in net inflows into stock and bond mutual funds in the U.S. in February 2012.

That marked an increase from January, when investors put a net $37 billion into long-term funds, according to Strategic Insight (SI), an Asset International company. February’s results were the best monthly net inflows for long-term mutual funds since March 2010, when long-term funds (excluding ETFs and VA funds) saw $49 billion in net inflows, SI said.   

In February, domestic equity funds saw net inflows of nearly $4 billion, during a month when the average U.S. equity fund gained 4% on an asset-weighted basis. The net inflows to domestic equity mutual funds in both January and February (totaling roughly $5 billion) was the first time U.S. equity funds enjoyed net inflows in two straight months since March-April 2011 (when U.S. equity funds drew a combined $6 billion in net inflows). Illustrating investors’ caution, February’s U.S. equity inflows were led by equity income funds, with nearly $3 billion of net inflows.   

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International and global equity funds saw net inflows of more than $6 billion. The leading categories were emerging markets equity funds ($3 billion in net inflows), which gained an average 5.8% in February on an asset-weighted basis, and global asset allocation funds ($2 billion), which gained on average an asset-weighted 3.5% in the month. February was the second straight month where these two categories led the way in international/global equity fund flows.  

Taxable bond funds saw net inflows of $30 billion in February, as investors continued to use bond funds as income-producing alternatives to money market funds, CDs and bank deposit accounts. Leading the way were intermediate-term bond funds ($9 billion in net inflows), corporate high-yield bond funds ($5.5 billion), and mortgage-related bond funds ($3 billion). Muni bond funds enjoyed net inflows of $6 billion, as fears of widespread municipal defaults continued to fade.   

Money-market funds saw net outflows of $3 billion in February, which was an improvement over January’s net outflows of $43.7 billion. Ultra-low yields continued to hamper demand for money market funds – a trend that resulted in net outflows of $135 billion from money funds in the full year 2011.   

“Memories of extreme volatility are fading, albeit very slowly, as U.S. mutual fund investors are tiptoeing back into riskier assets. That’s why we have seen more fund shareholders choose to participate in financial markets via bond funds,” said Avi Nachmany, SI’s director of research.  

More information is available at http://www.sionline.com

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