Are Retirement Projections Based on Flawed Returns?

Though a recent survey suggests that while most workers expect their retirement plan returns will continue to match past experience, they could be well off the mark.

BlackRock reports that new consensus forecasts by Horizon Actuarial – based on a survey of 35 financial industry firms (including BlackRock) – suggest that, for the foreseeable future, stock and bond returns could be half that of recent decades. Yet, 66% of workers believe that over the next decade, returns on their savings will continue to be in line with what they have experienced in the past, while 17% believe they will experience even higher returns, according to the latest DC Pulse Survey from BlackRock. The survey included more than 1,000 participants in DC plans and more than 200 plan sponsors.

While it might be predicated on some exaggerated investment returns (or perhaps not), more than half (56%) of plan participants believe they are on track to retire with the lifestyle they want, and nearly 7 in 10 expect to be able to save enough to meet their financial goals in retirement.

Indeed, compared with last year’s DC Pulse survey, retirement confidence is increasing, with participants more likely to describe themselves as “on track” for retirement (56% vs. 52%), as well as “confident” (18% vs. 11%) and “optimistic” (22% vs. 17%).

Plan Sponsor Misperceptions

Apparently it’s not just plan participants who suffer from some misperceptions. Seventy percent of sponsors believe the annualized market returns for U.S. stocks over the next 10 years will be the same as or higher than the past. The same goes for bonds: 78% believe bond returns will remain consistent or be higher than they have been previously.

In the face of the new returns information, the confidence of both workers and sponsors slips. When presented with the forecasts, 39% of participants indicate they feel very or extremely concerned. Regarding the effectiveness of workers’ retirement planning, the survey shows that workers become less confident when it comes to such issues as whether they are saving enough to get a desired monthly income (32% confident vs. 44% initially) and taking an appropriate level of risk to meet retirement goals (33% vs. 53%). Similarly, the confidence of sponsors that workers are saving enough for the income they want drops 11 percentage points (to 38% from 49%).

All that notwithstanding, 70% of participants (as well as 54% of sponsors) say they do not expect to do anything different in the next 12 months to prepare for potential lower returns.

Nearly 6 out of 10 participants (59%) rate “increasing the company match” on their plan contribution as the most helpful thing their employer could do to address the low-return environment, while 45% of sponsors say they would encourage participants to save more.

Plan sponsor respondents to the survey have at least $300 million in assets, with nearly half of the respondents serving in benefits or HR roles, and the rest in finance, investment or business management for their organizations. Plan participants are employed full-time, participate in their employer’s 401(k) or 403(b) plan, and have at least $5,000 in assets in their accounts.

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