Most Don't Think Market Has Ruined Retirement

A Vanguard Group study finds only 13% of respondents strongly agree with the view that their retirement had been permanently impaired by the past year's market decline.

Those within 10 years of retirement and concerned about foreclosure and job loss were more worried about delaying retirement, according to a press release. Asked how they would cope with the retirement savings shortfall, 74% said they would reduce spending, 48% pointed to increasing savings, and 45% said it may be necessary to work longer.

The findings suggest that most American investors continue to view equities as a critical component of long-term investment plans, although they remain wary of risk and possess more modest expectations for future returns. Nearly 90% of respondents said they believe it is important to invest in equities in the years leading up to retirement, while seven in 10 respondents believe that some ongoing equity holdings are necessary during retirement.

Whether due to inertia or a belief that their portfolios were suitably constructed, Vanguard said, six in 10 households made no changes to their equity holdings during the market decline. While 21% of stock market investors reduced equity holdings and 5% sold all equities during that period, a fairly sizeable group of 17% increased stock exposure. Even among those selling all equities, most respondents plan to resume investing in the stock market. 

According to the press release, analysis of the survey results shows the decision to sell or reduce equity holdings was less related to concerns about heightened market risk than it was to several factors: first- or second-hand experience of a job loss or foreclosure during the crisis, whether the investment was in a taxable account, and the time to a planned retirement.

Nearly three-quarters of respondents (73%) said they knew that significant market declines could occur. About half agreed that the stock market is a more dangerous place to invest than in the past, while half believed that the risks of stocks are worth taking.

Investors anticipated a median return of 7.5% on stock market investments, well below the 10% to 12% long-term average returns seen historically for the stock market.

Respondents to the survey consisted of 3,012 American investors, ages 21 to 79, in households with $5,000 or more in savings and investments.

The survey report can be downloaded here.