By Jim Chapman
The optimism of American investors waned in the fourth quarter, but investors who are using a 401(k) are more optimistic than investors who are not.
The quarterly Wells Fargo/Gallup Investor and Retirement Optimism Index showed that optimism among retired and non-retired investors fell to +25, a decline of eight points from +33 recorded in August. The drop in optimism among the 1,014 surveyed represents the largest fall of the index for the year.
Flagging investor optimism is linked to concerns about the overall economy; however, the Gallup data also show that non-retired investors who are in a 401(k) or 403(b) plan report the highest optimism level of all investors at +41, far surpassing the +6 optimism level of non-retired investors who do not have a 401(k) plan.
The 401(k) plan is a device that allows for disciplined regular saving, and is closely associated with the economic outlook of a person and the actual savings a person accrues.
Having a plan puts into practice the natural savings intent that many Americans already have. According to the Gallup research, 75% of investors surveyed this fall said their saving and investing efforts are for the long-term, with 53% citing retirement as that long-range goal and 22% choosing a different long-range priority.
Among investors with a 401(k) plan, 56% of non-retired Americans identify “saving for retirement” as their main savings priority. That’s well above the 41% of non-retired people without a workplace retirement plan who make retirement a savings priority.
The 401(k) Plan is Essential
The Gallup research conducted in November comes on the heels of our Wells Fargo Middle Class Survey results that were released in October. In that study, results again point to the positive effects of a 401(k) plan. Eighty percent of middle class Americans between the ages of 25 and 60 labeled a 401(k) plan “essential” to saving enough to live comfortably in retirement. Women, in particular those between 30 and 39, voiced the strongest support for this, with 91% viewing a 401(k) plan as “essential.”
In our study of middle class Americans, we found that those who have access to a 401(k) plan have saved a median amount that is three times that of those who have no access to a plan. The key here is that the plan provides discipline and regularity so that savings can be accumulated. Consider the response to a question we asked in our survey about ability to save: 64% of those without access to a plan acknowledge that they should save more for retirement but “just can’t seem to do it,” whereas only 38% of those with access to a plan felt the same. Nearly half (49%) of those without access to a 401(k)-type plan say they will never retire, but work until too sick or die, compared to 33% with access.
Given the positive impact of an employer-sponsored plan we see every day, we asked people to weigh in on the idea of mandating these kinds of plans across the nation. Sixty-eight percent of middle-class Americans favor requiring all U.S. businesses to offer a retirement plan to all employees. However, about half (52%) think businesses should automatically enroll employees in a workplace retirement plan. Middle-class support dropped to 32% when considering a law requiring all Americans to save at least 3% of annual earnings for retirement.
People also told us how they rely on a 401(k) plan to save, and if it were no longer available, they would replace it with something similar. Of middle-class Americans with access to an employer-sponsored plan, 81% said they would set up automatic contributions to another savings plan “like an IRA,” if their employer plan ended. That tells me people see the benefit of having a dedicated account that can grow into a retirement nest egg through regular, disciplined saving.
We’re heartened that people recognize the importance of saving early and regularly, while acknowledging their need for help to get started and stay the course. The hope is that as an industry and as a nation, we can soon make real headway on retirement as a shared responsibility model so it is more achievable for Americans.
Jim Chapman, director, Wells Fargo Institutional Retirement & Trust is based in Houston.