Impact of the Market Crisis on Retirement Preparedness - Prudential's Four Pillars of Retirement Series
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Prudential’s
Four Pillars of
Retirement Series
Impact of the Market Crisis
on Retirement Preparedness
Americans are rebuilding their retirement savings,
and considering guarantees to protect their futureSummary
1. Americans acknowledge that the market crisis 4. Likelihood to consider guaranteed
has hurt their prospects for a secure retirement. investment products is high.
• Six in 10 express significant concern about their • When presented with ideas for guaranteed
retirement savings and investments. Many are investments products, three-quarters said a
making immediate sacrifices to deal with the product with guarantees for lifetime income,
financial and emotional challenges, such as protection of principal, and opportunities to lock
cutting back on spending (54%) and postponing in market gains would be important or nice to
retirement (41%). have as part of their portfolio.
• Eight in 10 reveal a need to start rebuilding their • Two-thirds of Americans would be likely to pursue
savings, and many show signs of re-evaluating a solution that offered guaranteed income as part
their approach overall. In fact, more than four of an annuity—this number even includes those
in five respondents say they wish they had been who have access to guaranteed income through
better protected, and that they are more cautious other sources (e.g., Social Security or pensions).
now than ever before. • If protected by such guarantees, seven in 10 said
they would be likely to put money back into the
2. Recovering from market losses will be stock market.
a challenge, but most remain optimistic.
• On average, respondents think they lost 30% of 5. Many are feeling a greater sense of
their assets as a result of the market turmoil. accountability, but advisors will play a critical
• In reaction to the crisis, 29% pulled some or all role in helping consumers discover options
of their money out of equities in order to avoid
for mending their investment portfolios.
further losses. Only 19% took the opportunity • Americans are paying more attention and want
to invest more. Most, however, have made no more control of their portfolios (at least for the
sudden portfolio changes (52%). immediate future). For some, this means using
“me” as the number one source for guidance
• While 38% think they won’t be able to grow back
(48% today vs. 37% before the market decline).
the money that they’ve lost in their workplace
retirement plan, the majority are optimistic, • Yet, two-thirds would still trust a financial
saying they will “probably” (47%) or “definitely” professional for information and guidance on how
(15%) recoup their losses. to best manage their retirement savings and
investments.
3. Investors are becoming more conservative. • And for more complicated products, consumers
still need and want to talk to advisors. In fact,
• Self-reported data reveals that a year ago, on
66% said their preference for learning more
average, retirees and pre-retirees had roughly
about guaranteed income would be by talking to
61% of their investable assets in equities vs.
a financial professional.
today’s average of 50%.
• Moreover, seven in 10 say that being too
aggressive with your investments is riskier than
being too conservative. This is in stark contrast to
just two years ago when respondents were split
evenly on this matter.Impact of the Market Crisis on Retirement Preparedness
Research Objectives Profile of Study Participants
Half of Americans say the recent market downturn was • The total sample focuses on Americans in the most
the “worst economic time of their lives.” This study critical retirement planning years, and those actually
reveals how Americans are: living in retirement.
1. Reacting to the impact of the crisis on their • The data throughout this study are segmented by
retirement prospects employed (n = 500) and retired (n = 501).
2. Planning to rebuild their retirement
3. Reconsidering tools and assistance required to be GENDER
successful
61%
About the Study 39%
• Prudential’s study polled 1,001 Americans during
March/April 2009.
• The survey was administered online and has a margin
Male Female
of error of ±3.1% at the 95% confidence level.
• Each respondent met the following criteria:
– Age 45-75 AGE
33%
– Participates in a defined contribution plan 28%
– Has retirement savings of $100,000 or more
19%
– Primary or joint decision-maker on household 16%
financial decisions
2% 2%
45-49 50-54 55-59 60-64 65-69 70-75
INVESTABLE ASSETS
32% 34%
16% 14%
4%
$100K- $250K- $500K- $1M- $2.5M+
$250K $500K $1M $2.5M
Impact of the Market Crisis on Retirement Preparedness 1More than 8 in 10 Americans feel the emotional
and financial impact of the market crisis
Vulnerabilities have been heightened Concessions are being made
• The good news is that despite the market crisis, • More than half of retired and employed Americans
only 5% feel “panicked.” Yet, the 59% who have say the market crisis has forced them to make
“negative” reactions report portfolio losses of concessions in their lifestyle.
36% on average. The challenge now is to take these • They are spending less, postponing retirement, living
negative consequences and start the process of modestly—all in an effort to save more money and
rebuilding savings in time to provide for a rebuild their retirement security.
comfortable retirement.
• Half of Americans are behind in reaching their goals,
• One-quarter of Americans feel powerless in that they so suffering market losses has led many to make
“don’t know what to think about the downturn.” They immediate shifts in their behavior, with a renewed
also report significant portfolio losses, at 31% on focus on protection and preservation.
average. Clearly, recovery is important for them, too.
• Retirees are making the most significant
• Those “not affected” were either very smart or lucky, concessions. In fact, nearly half are living modestly
as 63% of their assets a year ago were not invested in or struggling.
equities, and their losses were limited to just 12%.
REACTIONS TO THE MARKET CRISIS
Among Total The impact of the market crisis
Self-reported on Americans’ financial stability
portfolio losses Among Total
Panicked 5%
54% Say that they’ve had to make
concessions in their lifestyle
Disappointed 36% Among Employed
59% 36% 52% Are behind schedule for
Negative
their retirement savings goals
41% May need to postpone retirement
21% Have already postponed retirement
Regretful 18%
Among Retired
47% Are living modestly or struggling
24% 31%
Don’t know 24% Don’t know
17% 12%
Not affected 17% Not affected
2 Prudential Four Pillars SeriesRetirement security is impacted by market forces
as well as by investor choices and decisions
Outside factors create Personal investment decisions can also
hurdles to saving for retirement pose challenges to retirement security
• In this environment, rebuilding retirement savings • Despite the turmoil, half of Americans have made no
is challenging. Outside factors—such as market changes to their investments (52%). Among these
volatility, inflation, and rising health care costs— individuals, many do not know what to do and
influence and maybe even limit the ability to grow “staying the course” may seem easiest. However,
savings. Americans recognize these issues as being successful in the future may require new
significantly “hurting” their retirement prospects approaches and strategies.
at this point in time. • On average, three in 10 pulled money out of equities
• Even in certain areas where Americans see some as a way of limiting further losses. However, they run
glimmer of hope, such as income growth and real the risk of missing out as a potential rebound begins.
estate, the negative reactions far outweigh the • Americans who felt negatively affected by the
positive ones. downturn were most likely to pull money out of the
• Employer contributions to 401(k) plans are clearly equity market—34% did so.
the factor that Americans see as most beneficial to
their retirement prospects at this point in time.
CHANGES TO RETIREMENT SAVINGS
AND INVESTMENTS – LAST SIX MONTHS
THE FACTORS AMERICANS BELIEVE ARE Removed all or some money from equities
IMPACTING THEIR RETIREMENT PROSPECTS Invested more
Among Total
No action
Hurt Helped
Your employer’s 10% 42% 29% 25% 18%
contribution to 401(k) 34%
20%
Your income growth 41% 28% 19% 18%
18%
Your job security 15% 26%
62%
52% 57%
48%
Real estate value 44% 22%
Health care costs 60% 7% Among Don’t Not
Negative affected
Total know
Inflation 62% 7% Based on reaction
to the market downturn
Government 67% 9%
policies
Stock market 79% 10%
Impact of the Market Crisis on Retirement Preparedness 3The recession has been a wake-up call for most Americans
Investors vow to be more cautious But knowledge and confidence lag
• Prior to the market decline, employed Americans • Prior to the market crisis, 56% of retirees felt they
had been primarily focused on asset growth and had accumulated sufficient assets to last a lifetime.
accumulation. During the “boom” years, some Today’s reality is that neither retirees nor those
thought very little about protecting their assets employed feel “very” confident their retirement
against potential market losses. savings will be enough.
• Today, more than four in five total respondents regret • While Americans understand the importance of
not being better protected and say that now more making their money last in retirement, many may
than ever they are more cautious with their retirement lack the experience and product knowledge to be
assets. successful.
• The market decline has inspired individuals to • For example, among retired Americans who are very
rethink their personal responsibility to plan for knowledgeable about financial issues, 41% are very
retirement, and to choose effective financial confident their assets will last, compared to only 6%
products. of retirees who have little or no financial knowledge.
FEELINGS ABOUT IMPACT OF MARKET CONFIDENT THAT SAVINGS
CRISIS ON RETIREMENT SAVINGS WILL LAST THROUGH RETIREMENT
Among Total
Very confident Somewhat confident
“I wish my assets had been better
15% 22%
protected from market losses”
56%
Strongly agree Somewhat agree
42% 44% 86% 63% 55%
39%
“I am more cautious now with my Post-Crisis Pre-Crisis Post-Crisis
retirement assets than ever before” Employed Retired
Strongly agree Somewhat agree
35% 48% 83% IMPACT OF FINANCIAL KNOWLEDGE ON CONFIDENCE
THAT SAVINGS WILL LAST THROUGH RETIREMENT
% Very Confident
Based on
Financial
Knowledge Employed Retired
Very 35%
knowledgeable 41%
Somewhat 19%
knowledgeable 11%
Not 5%
knowledgeable 6%
4 Prudential Four Pillars SeriesInvestors are becoming more conservative
Most are shying away from Many are not quite sure of strategy
aggressive portfolios • Less than one in five employed Americans feel
• The market turmoil has caused many to shift to a “very” confident about their investment approach
more conservative strategy. On average, only one in for retirement. And many are not sure they’ll be able
five expect their investment behavior over the next to grow back the money they’ve lost in their defined
five years to be “more aggressive.” contribution plan—38% say “no” and 47% answer
• In fact, today, 68% feel investing too aggressively “probably” rather than a definitive “yes.”
is the greater risk, versus 50% two years ago. • Investors in and near retirement are searching for a
• More evidence of this shift to more conservative cure. While being conservative for the interim may
investment behaviors include the following points make investors feel somewhat safer, they may not
(not charted): achieve the growth they need nor have the income
necessary to last throughout their retirement.
– 52% say they hesitate to invest more in stocks
and mutual funds right now despite future • Retirees especially are looking for opportunities for
growth opportunity. growth. In fact, 73% say they are looking for new
ways to grow their assets (not charted). Yet they do
– Assets held in equities declined from 62% a year
recognize a need to balance growth opportunities
ago to 50% today.
with principal protection.
– When pre-retirees did reallocate 401(k) assets,
9 in 10 moved to more conservative investments.
CONFIDENT IN MAKING THE RIGHT
RETIREMENT INVESTMENT DECISIONS
ANTICIPATED INVESTMENT Very confident Somewhat confident
BEHAVIOR FOR NEXT 5 YEARS
More aggressive More conservative Don’t know 18%
24%
Employed
24% 50% 26%
Retired 71%
64%
17% 47% 36%
Employed Retired
WHAT IS THE GREATER RISK IN CONFIDENT THAT DC PLAN ASSETS
INVESTING FOR RETIREMENT? WILL GROW BACK
Based on employed Americans
Too conservative Too aggressive
2009
Definitely
15%
32% 68% No
38%
2007
Probably
50% 50%
47%
Impact of the Market Crisis on Retirement Preparedness 5Retirement income guarantees
become more important in a volatile market
Creating sufficient income while Investment guarantees to support
maintaining asset levels is a challenge future income become important
• One-third of retirees (32%) are funding their • 42% have a positive opinion about investment
retirement primarily by drawing down their savings. products that offer guarantees as a means of
For this population, preservation of assets may be helping to secure their future.
challenged. Without a significant market recovery, • Only 22% had negative feelings toward investment
they may deplete their assets sooner than expected. guarantees.
• Three in five employed Americans expect their • However, 36% did not know enough about these
primary source of retirement income will be their own options to state an opinion. Education and advice are
personal savings. They have more time to catch up, critical.
yet few are confident they will be able to save enough • Close to one-third of Americans consider the most
and preserve accumulated assets in retirement (18%). important guarantee to be a lifetime income
• For both populations, financial knowledge has a guarantee.
significant impact on confidence in being able to
meet critical retirement planning needs.
ATTITUDE TOWARD
GUARANTEED INVESTMENT
PRODUCTS Negative
HOW AMERICANS ARE SUPPORTING (OR EXPECT TO
Among Total 22%
SUPPORT) THEIR INCOME NEEDS IN RETIREMENT
Positive
Gradually drawing Living primarily off of Social 42%
down personal Security and/or pension, Neutral
retirement savings while preserving as much 36%
savings as possible
Employed
61% 39%
Retired
32% 68% WHAT DO YOU FEEL WOULD BE THE MOST
IMPORTANT FEATURE FOR YOU TO HAVE IN
MANAGING YOUR SAVINGS FOR RETIREMENT?
Employed Retired
IMPACT OF FINANCIAL KNOWLEDGE ON CONFIDENCE
IN MAKING THE RIGHT RETIREMENT DECISIONS Guaranteed lifetime income
% Very Confident from your retirement savings 31% 29%
Among
Based on Flexibility how and when you
Financial Employed – Savings and planning take retirement income 16% 15%
Knowledge Retired – Generating income for life
Guaranteed minimum
annual income 17% 13%
Very 43%
knowledgeable 46%
Guaranteed income to a
spouse after the retiree’s death 8% 13%
Somewhat 14%
knowledgeable 21%
Opportunities for increasing
guaranteed income amount 7% 9%
Not 4% by locking in market gains
knowledgeable 6%
Guaranteed protection of principal 6% 9%
18%
Total 24%
6 Prudential Four Pillars SeriesMore than 8 in 10 employed think guaranteed investment products
could be a good fit for a portion of their retirement portfolio
Guarantees viewed as a good fit HOW CONSUMERS FEEL GUARANTEED PRODUCTS
WOULD FIT INTO THEIR PORTFOLIO
• One in five are convinced of the importance of
investment guarantees, saying it would be a A perfect 14%
addition to 22%
“perfect addition” to their portfolio. A large majority my portfolio
say it would be at least “nice to have.”
54%
68%
• Most would not seek guarantees for 100% of their Nice to 83%
have in 61%
portfolios. Typically, Americans say they would want my portfolio
to protect about 30% of assets.
I don’t think
• The majority are willing to consider investment I need it in 32%
guarantees—approximately six in 10 say they would my portfolio 17%
be at least somewhat likely to consider guaranteed Employed Retired
products. Interest levels are high among employed
Americans as well as retirees. 32% 29%
Percentage of portfolio for which investors
• These guarantees are of interest even among those feel guarantees would be appropriate
who feel ahead of schedule in saving for retirement or
who already have other sources of retirement income.
For example, 64% of investors with a pension are VEHICLES THROUGH WHICH INVESTORS SHOW
willing to consider guarantees for a portion of their LIKELIHOOD TO CONSIDER GUARANTEED FEATURES
Among Total
non-pension retirement assets (not charted).
Very likely Somewhat likely
Within a variable annuity
More scenarios for acquiring guarantees
18% 43% 61%
• Likelihood to consider guarantees appears to be
equally high no matter which avenue presented to As option in 401(k) plan
investors—whether it be directly through a variable 20% 39% 59%
annuity or within a 401(k) plan.
As rollover of 401(k) assets
• This interest in guarantees in the aftermath of the
crisis shows investors are open to considering new 21% 40% 61%
product solutions and that many consumers
appreciate the potential value of guarantees.
• In fact, half said that in concept they would pay
HOW INVESTMENT BEHAVIORS MIGHT CHANGE
“extra” for an add-on to an investment product if it
IF PROTECTED BY GUARANTEED PRODUCTS
could guarantee income, growth, and protection of
Definitely Probably
principal (not charted).
Choose more aggressive
Put some money in or investments with greater
back in the stock market potential for return
The protection of guarantees could steer 76%
investors back into the market 63%
19% 61%
• Many would consider venturing into the equity market 17% 49%
again if guarantees were in place. 13%
9%
• Guarantees would also encourage many to invest less
57%
conservatively to give themselves a better chance to 48% 46% 40%
rebuild their retirement savings.
Employed Retired Employed Retired
Impact of the Market Crisis on Retirement Preparedness 7Advisors will play a critical role in helping
consumers discover options for recovery
Consumers take more control Two-thirds still turn to their advisor
• After experiencing the market decline, consumers • For more complicated products in particular,
recognize a need to become more responsible for consumers need and want to talk to advisors. In fact,
their own retirement planning. roughly two-thirds of Americans said one of their top
• Advisors are still critical; however, advisors face the choices for learning more about guaranteed variable
task of rebuilding consumer trust. annuities would be talking to a financial professional.
• While consumers typically do not blame advisors for • A close second is the Internet, which in many cases
the market downturn, trust going forward is an issue. would be used in preparation for meeting face-to-face
with an advisor.
DEGREE OF TRUST CONSUMERS HAVE IN THEMSELVES Many would also consider using
AND THEIR ADVISOR FOR RETIREMENT GUIDANCE
Among Total
new or additional advisors
• Consumers may be less loyal to current advisors than
Definitely Somewhat No they had been. For example, 78% said they would
consider using a financial professional other than
Me
their own if interested in a guaranteed retirement
58% 35% 7% income product that was not available from their
current advisor.
Financial Professional
28% 40% 32% LEARNING MORE ABOUT GUARANTEED PRODUCTS
Ranked as #1 choice Ranked as #2 or #3 choices
Employed
Talk with
LIKELIHOOD TO SPEAK WITH AND PURCHASE FROM advisor 38% 26% 64%
FINANCIAL PROFESSIONAL OTHER THAN THEIR OWN
Among Total Use Internet
to research 24% 32% 56%
Very Retired
Not likely
likely 17% Talk with
44% 24% 68%
22% advisor
Use Internet
to research 18% 38% 56%
Somewhat likely
61%
8 Prudential Four Pillars SeriesPrudential’s Four Pillars of Retirement
The Four Pillars of Retirement represent the foundation
of retirement security today, from Social Security to
the choices made in retirement. Prudential uses these
pillars as a framework for research reports, press releases
and other information about the retirement issues and
challenges facing Americans today.
SOCIAL EMPLOYMENT- PERSONAL RETIREMENT
SECURITY BASED PLANS SAVINGS CHOICES
©2009 The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102-3777. ALL RIGHTS RESERVED. Prudential Financial,
Prudential and the Rock logo are registered service marks of The Prudential Insurance Company of America and its affiliates.
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