Dave Goodsell has been taking investors’ pulse on retirement for more than a decade. As the executive director of the Natixis Center for Investor Insight, he has overseen research that reveals Americans’ complex and seemingly contradictory attitudes about life after work.
His surveys show that Americans are optimistic about their prospects for retirement—on the surface. Beneath it lie worry and avoidance, and not without reason: The average 401(k) balance was $112,400 in this year’s second quarter, according to Fidelity.
While that is far from enough to sustain a stage of life that could last for decades, there are encouraging trends: Millennials are saving a healthy 16.3% of their income for retirement, while baby boomers and Gen Xers are saving just under 10%, according to Natixis’ research. Boomers who have been socking away money in their 401(k) plans continuously since 2008 have an average balance of just under half a million dollars, Fidelity finds.
Barron’s recently talked with Goodsell about how Americans can do a better job of preparing for retirement. An edited version of the conversation follows.
Barron’s: Last year was a terrible year for the markets and a terrible year to retire. What is the takeaway?
Dave Goodsell: Last year was a reminder that markets can go down. The big lesson, maybe, was that things can change really quickly. Since 2009, there have been only four years in which the
S&P 500 index
failed to deliver a positive return, and one of those years was at zero. And out of the nine years that the index was up, only one year was below 10%. Last year was the unusual year when stocks and bonds fell at the same time.
It was a shock for many investors that bonds fell 13% last year. What is the story with fixed income this year?
Financial advisors tell us it is the best yield opportunity in years and the best return opportunity in bonds in 15 years. Low interest rates had been a headwind for retirees, in particular. That has now changed.
If you are investing for retirement, bonds are once again ballast in portfolios, providing the traditional diversification benefit that they always had. The 60/40 portfolio—60% stocks, 40% bonds—makes sense again.
Your research has shown that most investors don’t understand bonds well. Explain.
We posted one survey question as a quiz. Pick all the options that are correct: When rates go up, present value of my bonds goes up; present value of my bonds goes down; my future income potential goes up; or, my income potential now goes up.
The answer is, present value generally goes down; future income potential goes up. Two percent of [respondents] understood that. More surprisingly, 2% of retirees understood it. More than 40% of retirees answered, “I don’t know.”
“If you are investing for retirement, bonds are once again ballast in portfolios”
Stocks are stories. It’s about a company that did something, made something, was successful. Bonds are math, and for most people math is hard.
Social Security is supposed to replace around 35% to 40% of the average preretirement income. Are people prepared to fund the remaining 60% to 65% on their own?
The data we’ve seen suggests they aren’t in great shape to meet that responsibility. Generation by generation, we see some interesting trends. Baby boomers are overconfident and underfunded. The median retirement need, based on our surveys, is $1.1 million. The median savings? Only $170,000. If you ask in surveys, are you going to be secure in retirement?, most people will say yes. It is important for investors to be optimistic, but optimism needs to be countered by realism.
What about other generations?
Generation X has more time. Based on our surveys, members of this generation expect to need a median $1.2 million in retirement, but at this point have saved $81,000 across all accounts.
Millennials are overconfident and underestimating what it will take to retire. They tell us they want to retire at 60. They are realistic in thinking they will live about 25 years in retirement, but in the same breath tell us they need only $891,000 to retire. They started out in their parents’ basement; maybe they’ll end up in their kids’ garage.
That’s a grim thought. What is the biggest mistake people make in preparing for retirement?
No. 1 is underestimating how long you are going to live. I built an in-law apartment for my folks in around 2006. My mother is still with us. She is 91, still self-sufficient. That is a big reminder of our potential longevity.
Most people consider market volatility the biggest retirement risk. Are they wrong, then?
Investors tell us their No. 1 definition of risk is market volatility. No. 2 is losing their wealth. In a survey last year, only 10% or 11% said “not meeting my [savings] goals” was No. 1.
When we put the question to financial advisors, they were three times more likely to say that missing your goals is a big risk for you. Market volatility happens all the time.
There is a lot of gloom and doom in the retirement space. What makes you hopeful?
I’m an optimist by nature. There are ebbs and flows to the markets and to world events. I feel hopeful when I see companies building things that people need and want.
Thanks, Dave.
Write to Elizabeth O’Brien at [email protected]
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