Data & Research April 12, 2012

Employees' Retirement Confidence Continues to Erode

The hangover from the recession and slow economic growth continues to erode employees' retirement confidence and overall financial wellness, according to the 2012 Financial Wellness Survey by the professional services firm PwC U.S.
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While there is a slight uptick in the number of employees saving for retirement—67% compared with 65% in 2011—savings remain weak, with 40% of respondents reporting that they are saving less for retirement than last year. As savings dwindle, so does retirement confidence: More than half (53%) of employees plan to retire later than they previously planned (up from 46% in 2011), an increase reported by all age groups younger than 65 years of age.

The top reasons employees expect to delay retirement are because they haven’t saved enough (60%), retirement investments declined in value (34%) or because they have too much debt (26%). Employees also report that they are saving less because of too many other expenses (25%), an increase in expenses (23%) or a decrease in income compared to last year (19%).

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More than one-third (35%) of employees believe they will need to use their retirement plans to pay for expenses other than retirement, such as education or a purchasing of a home, with results even higher for younger employees: 46% of those age 21 to 34 report the likelihood of using money held in retirement plans for expenses other than retirement. Nearly one-third (29%) of respondents have already withdrawn funds from their retirement plans to pay for other expenses.

 

"Employees are being forced to extinguish more immediate fires over retirement saving," said Kent Allison, partner and national practice leader in PwC's Financial Education practice, "which from a long-term perspective is highly risky behavior that can leave employees severely underfunded for retirement as they deal with increased longevity and rising healthcare costs down the road."

Of those employees age 55 to 64 who are planning to retire in the next five years, only about half (51%) know how much income they will need in retirement and slightly more than half have examined whether they are on track to meet their retirement goal (55%)—yet only 19% of all respondents have sought the help of a financial professional.

"As the retirement industry shifts from defined benefit to defined contribution plans, financial responsibility is increasingly falling on the individual plan participant," Allison said. "Despite efforts by employers to improve employee financial literacy around saving and investing for retirement, however, employees report continued discomfort with retirement planning and making investment decisions and short-term financial issues continue to be a significant obstacle to resolving the ever-growing retirement savings deficiency."

 "While auto-enrollment, auto-escalation, and employer matching contributions help increase participation and savings in retirement plans, the survey shows that there are other pressing near-term financial issues that, if left unaddressed, may undermine a company's efforts to resolve the retirement savings problem," Allison said. "We've seen a gradual recognition among companies that a more holistic approach to financial wellness and education can help employees address competing financial goals and issues which, in turn, will not only help keep plan assets dedicated to meeting future retirement needs, but also help free up additional capital to help combat the ever-rising cost of retirement."

 

Other Financial Concerns  

Cash flow and debt management issues continue to top employees' financial concerns, with concerns about not having sufficient emergency savings for unexpected expenses (54%) and not being able to retire on time (37%) more than doubling from last year's results. Almost half (49%) of 1,700 full-time or self-employed adults surveyed find it difficult to meet their household expenses on time, reflected in the continuation of employees using credit cards to pay for monthly necessities they could not otherwise afford (24%).

Employees' financial stress remains high: 61% of employees find dealing with their financial situation stressful, and more than half (56%) report that their stress level related to financial issues has increased over the past 12 months.

"The study is evidence that employees are still very much burdened by day-to-day financial concerns," Allison said.

"These distractions and resulting levels of stress affect employees' health and productivity, and perpetuate a myopic view that becomes an obstacle when it comes to longer-term retirement planning," added David Pouso, a director in PwC's Financial Education practice.

 

The Markets April 12, 2012

U.S. Economy to Expand 2.9%

The U.S., Japan and Australia are expected to escape the recession over the next 12 months. 
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The U.S. economy is expected to expand by 2.9% over this period, according to the Spring Outlook report from Mellon Capital Management Corporation, part of BNY Mellon Asset Management.

Excluding the U.S., Japan and Australia, most developed countries are expected to experience a mild recession over the next year, with European countries at the highest risk, the report said. 

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“The U.S. economy is continuing to strengthen and we now put the probability of anemic U.S. growth at less than 5%,” said Lex Huberts, president of Mellon Capital. “This is a significant improvement from September, when the probability was closer to 20% that the U.S. economy would grow at less than 2% over the next year.”

Mellon Capital generates its own proprietary measure of leading economic indicators (LEI), with an LEI level of slightly less than 100, indicating—in Mellon Capital’s view—a significant probability of a mild economic contraction.  All major developed countries except the U.S., Japan and Australia currently have readings below 100.  Southern peripheral countries in Europe have the lowest LEI, but France, Great Britain and Germany also appear weak, all below 99, signaling the likelihood of at least a mild recession, according to the report.

“Looking at our forward estimates of economic fundamentals, we are cautiously optimistic on stocks given the signs of economic recovery in the U.S., positive steps toward resolving the euro area debt crisis and the general stabilization of earnings forecasts in Europe,” said Huberts. “However, tensions with Iran are a concern.”

The report also notes that Mellon Capital is moderately positive on commodities, favors emerging markets equities and favors the Australian dollar and Canadian dollar among developed market currencies at this time.
 

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