Survey Finds Matching Contributions Most Valued 401(k) Plan Feature

New survey results show that plan participants place the most value in matching contributions offered by their employer for their 401(k) plan, above other commonly known plan features.

The Wells Fargo/Gallup Investor and Retirement Optimism Index finds that more than half (57%) of investor respondents say the matching contribution is most valued feature of their 401(k) plan, followed by the tax deferral on contributions to the plan, registering at 33% of respondents.

When asked how they would react if the tax deferred status of their 401(k) plan was taken away, nearly half (46%) of U.S. investors said they would “save less” or “stop saving” in their 401(k), while 42% said they would save the same amount. These findings would appear to reinforce the argument against limiting the tax deferral or mandating a Roth arrangement.

Says Fredrik Axsater, executive vice president and head of Strategic Business Segments at Wells Fargo Asset Management: “The 401(k) plan has evolved into the greatest savings and investment vehicle that Americans have today to steadily build a retirement nest egg. Pre-tax savings has a direct impact on the level of savings that people achieve, and we have to recognize this as the country contemplates changes in tax policy.”

Meanwhile, investor optimism has held steady and is near the high reached in September 2000, according to the findings. Investors are generally optimistic about all aspects of the index (views on future income, investment performance, economic growth, unemployment, stocks and inflation), with especially strong optimism about economic growth, stock market performance and employment, the report explains.

Noting that investor optimism generally tracks with market gains, the findings show that 72% of investors are “somewhat” or “very optimistic” that they will be able to achieve their investment goals over the next five years, up from 52% of investors during the same quarter five years ago.

Lifetime Income

Nearly all non-retired investors (98%) either somewhat or strongly agree that a guaranteed income stream in retirement is important, in addition to Social Security. But when asked whether they want a guaranteed monthly income stream, even if that means “giving up access to some of their money,” the results are fairly lower, but still a majority, with 61% either somewhat or strongly agreeing.

However, when asked whether they want the freedom to spend their money as they want in retirement, even if that means they may run out of money “too soon,” 75% of non-retired investors either somewhat or strongly agree.

Social Impact Investing

Social impact investing appears to be gaining momentum among younger investors and female investors, although whether that translates into actual investments is another matter.

Defined as “choosing investments based on the effect they have on things like the environment, human rights, diversity and other social values, in addition to investment returns,” nearly 40% of younger investors aged 18-49 said they are somewhat or very interested in social impact investing. This compares to nearly 30% of investors age 50 and older. In addition, nearly 40% of female investors express more interest in investing in social impact investments, compared with 26% of male investors.

Moreover, the findings further show that 44% of non-retired investors with a 401(k) say they would “definitely” or “probably” put money in social impact investments if they had the option in their plan. Yet only 10% of investors say they currently have money in social impact investments and investors apparently are unclear about the performance of social impact funds in comparison to the market as a whole. The findings show that 37% believe social impact investing performs the same as the market average; 33% believe these investments perform worse; 28% say they are unsure; and just 2% say these types of investments perform better.

Investing Internationally

When asked their views on the riskiness of investing internationally, U.S. investors appear to be more skeptical, compared to domestic investing. The findings show that 57% of respondents believe making international investments is “a little” or “a lot” riskier than U.S. investments, while 25% see international investing as equal in risk and only 10% say international investing is safer.

In this case, age differences appear to be a factor. Investors who view international investing as “riskier” than domestic investing were found to be older, with 64% of those respondents age 50 or older. Concern about political instability also appears to be a factor, with 53% of investors who believe investing abroad is more risky because of the “potential for political instability.”

Nevertheless, according to the Wells Fargo Investment Institute 2018 Outlook, some international equity markets appear more attractive than domestic markets because the U.S. market is later in its growth cycle compared with international economies and markets.

The findings in the Wells Fargo/Gallup Investor and Retirement Optimism Index are based on a telephone survey of 1,015 U.S. investors conducted Nov. 1-5, 2017, with 67% of respondents being non-retired and 33% retired.

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