See how COVID-19 is changing retirement
Planning for retirement can be complicated. Planning for retirement and healthcare costs during a pandemic and economic downturn can be very complicated. Retirement plan professionals, financial advisors and asset managers can help. We can deliver resources that increase awareness and improve decision-making. We can offer guidance that cuts through the complexity. And we can develop solutions that solve retirees’ income challenges.
Read about our newest research in retirement below, starting with the results of our annual retirement study. Working together, we can help make retirement plans a reality. Let’s reclaim retirement.
2020 Annual Retirement Study
This year’s study sheds light on how an unexpected crisis can impact retirement — in real time. Today’s workers and retirees are optimistic about the future, with some more vulnerable than others. Women in particular are more financially stressed. But there is one thing that helps everyone to be better prepared.
Blind spots for retirement savers
Contrary to the old saying, what you don’t know can actually hurt you. Our annual retirement survey has revealed key blind spots for many investors — Social Security, portfolio management diversity (or lack thereof), and core menu equity bias. How can more focus on each area benefit today’s investors? Nate Miles, Head of Retirement at Wells Fargo Asset Management, explains.
Nate Miles: Hi, I’m Nate Miles, Head of Retirement here at Wells Fargo Asset Management, and today I want to spend just a couple of minutes talking about blind spots. Our teams conduct hundreds of meetings a year with defined contribution plan sponsors, their consultants and advisors. And there are a few topics that we’re always surprised don't come up more often.
Firstly, Social Security, the most common form of primary retirement income for today's retirees and likely tomorrow's, according to the Wells Fargo Retirement Survey that we’ve been conducting annually for the past decade or more. Additionally, our research identifies that for a married participant, roughly 40% of their pre-retirement income will be replaced by Social Security. If a plan sponsor’s targeting 60%-80% income replacement, clearly Social Security is an incredibly important benefit for plan participants. We think plan sponsors need to spend more time understanding what it is, and how the participants might look to utilize Social Security in retirement.
Secondly, we’re looking at the blind spot of portfolio manager diversity. We spent an incredible amount of time over past 12 to 18 months looking at how our money is invested from an ESG perspective, but we’ve spent less time thinking about who is managing our money. In fact, a quick review of the 100 largest mutual funds in the defined contribution marketplace by AUM reveals that only one is run solely by a woman. We think it’s high time we think not only about how our money is being managed in the defined contribution space but, importantly, who is managing our money.
Finally, we’re looking at the core menu, and the equity fund bias that continues to exist in the core menu. As we think about survey after survey revealing increasingly that plan sponsors want to retain assets in the retirement phase, we think the core menu needs to evolve from one where there are two or three fixed-income options relative to 10 to 12 equity options, to one where there might be five, six, or seven options that really will drive better outcomes on the decumulation phase.
Importantly, these might be fixed-income options, or they might be balanced fund options. The core menu equity fund bias really probably stems back to DC plans when they were first conceived. They are meant to be supplemental to both Social Security and defined-benefit options. Defined-benefit options clearly are going away for future retirees and so it's high time to think about rearranging that for many, to facilitate better draw-down options for participants.
So three blind spots we see are Social Security, portfolio manager diversity, and the core menu equity bias. Please contact your Wells Fargo Asset Management representative to learn more about these topics and for further dialogue.
Disclosures: On behalf of Wells Fargo, The Harris Poll conducted 4,590 online interviews, including 2,660 working Americans age 18-75 whose employment was not impacted by COVID-19; 725 Americans age 18-75 whose employment was impacted by COVID-19; 200 high-net-worth American workers age 18-75; and 1,005 retired Americans; surveying attitudes and behaviors around planning their finances, saving, and investing for retirement. The survey was conducted from August 4 – August 24, 2020.
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