Investor optimism took a hit this month, dropping 13 points since January to its current reading of 80, according to the latest UBS/Gallup Index of Investor Optimism.
Despite the fact that this is a significant decline since January, optimism among U.S. investors remains higher than it was during most of last year, UBS notes. “The February decline is due to falling investor confidence in the performance of the stock market (the Dow Jones Industrial Average dropped 4% just prior to the survey period, falling from its January breach of the 11,000 barrier),” it explains.
In a special report, UBS also notes that its research suggests that sources of retirement income are expanding, that fewer investors expect their pensions to be their major source of retirement income and that the retirement age is slowly creeping upward. “Attitudes about retirement savings are gradually changing as life expectancy increases and investors deal with the reality of needing multiple sources of income to last them over a longer retirement period,” said Robin Miranda, associate strategist, UBS Wealth Management Research.
The survey finds that 28% of investors expect that when they retire, they will not have enough money to last them for the rest of their lives. About half, 51%, expect to have just about enough, while another 20% say they will have more than enough money.
Investors who expect a shortfall are most likely to make up the deficit by tightening their belts and spending less during retirement than they had hoped (65% are “very” likely to follow this approach) working longer before they actually retire (63%) and doing more part-time work once they do retire (51%). They are much less likely to pursue a more aggressive investment strategy to make up the deficit (only 29%) or increase the amount of money they save (just 31%). Only 18% are “very” likely to do nothing differently.
The sources of investors’ retirement income continue to expand. Fewer and fewer investors will rely primarily upon a company pension for retirement, or even on personal savings. More investors expect to rely on part-time work, and a substantial number plan to earn money in retirement from a hobby or starting a business. In 1998, shortly before the peak of the stock market, 61% of investors said they expected personal savings and additional investments to be a major source of retirement income. Today, just 41% cite these as potentially major sources of retirement income.
The percentage of investors saying they will rely on company pensions has also declined in the past decade. In the late 1990s, 40% of investors expected pensions to be a major sources of retirement income, compared with just 29% today. But there has been no significant change in the percentage of investors citing such personal investment plans as a major source of retirement income.
Other major sources of retirement income include Social Security (21%) money from a business or hobby (19%) part-time work while retired (18%) and an inheritance (9%). The percentage relying on part-time work is double what it was in 2001 and 2002. Just over half of all investors, 51%, expect that an inheritance will be either a major or minor source of retirement income. Still, just 36% say that leaving money to their families is an explicit part of their own investment strategy.
Also, 23% of investors expect to work past the normal retirement age of 65, not much different from the percentage with that expectation four years ago, but greater than the 15% in 2001 who expected to work that late in life. On average, investors polled expect to retire at age 63. Only 11% expect to retire by age 55, down from 15% who held that expectation in 2002, and 24% in 2001.
Investors’ expectations for return on their portfolio have improved with expectations averaging 11.6%, up from 9.4% last month. The number of investors who think now is a good time to invest in the financial markets (62%) has not changed significantly since last month (63%).
These findings are part of the 95th Index of Investor Optimism, which was conducted February 1 to February 16. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. The sampling error in the results is plus or minus four percentage points.