RETIREMENT INSIGHTS

Participants show surprising confidence despite COVID-19

BlackRock |May 14, 2020

A pair of surveys before and after the recent market volatility provided us the opportunity to ask: did beliefs, expectations shift?

The annual BlackRock DC Pulse Survey, which takes the measure of plan sponsors, participants, and occasionally retirees, was complete by February 2020 – just before COVID-19 pandemic-inspired volatility sent the market into a steep drop. This provided us a unique opportunity to return to the survey population to discover what, if anything, had changed.

What we found is that previously confident participants remain confident in the second survey, and perhaps surprisingly, appear to be even more committed to retirement savings. However, volatility appears to have deepened concerns for those who feel off track for retirement, and increased interest in guaranteed retirement income for retired participants.

What follows is a look ahead at key 2020 DC Pulse findings. Full survey findings will be published this summer.

Confidence holds steady, retirement focus increased

The follow up survey found that 67% of participants believe they are on track for retirement – the same number as before the market volatility. Other topline evidence of optimism can be found:

income
69%
Believe they will recover all or most of their savings
Performance
59%
Will keep their investments as-is
Trends Arrow
32%
Will increase their savings rates
Portfolio
28%
Will make no changes to their savings plan

As for managing the short-term effects of volatility, 43% say they will decrease their spending. It may be that focusing on reducing spending as a response to uncertainty has empowered participants to meet difficulties on their own:

chart before and after pulse

For illustrative purposes only

Faced with the ultimate financial challenge, 50% said they could survive off their savings for at least six months if they are laid off.

Confidence is not evenly distributed

A closer look at the numbers shows that confidence is not evenly distributed across generations, which is something plan sponsors may wish to consider as they communicate with their participants – particularly Gen Xers. 

Millennials, for the most part, began their careers in the 401(k) era with features like auto-enrollment and target date funds already in place, and the expectation that they needed to provide for their own retirement. Boomers may be more likely to have sources of pension income and have been in position for the bull markets of the 1990s.

Gen Xers are the transition generation, which may be why they are less confident than their younger and older colleagues.

 

Post-pandemic survey Millennials Gen X Boomers
On track for retirement 73% 57% 71%
Will recover most or all of savings 75% 59% 73%

For illustrative purposes only.

When we look at expectations for the economy, we find Gen Xers are more likely to believe the economy will recover within 12 months as compared to Boomers (53% to 45%), which suggests that their concerns are rooted in their personal circumstances rather than general expectations.

The Gen X response is mixed. While 52% say retirement saving is a priority right now, compared to 45% pre-pandemic, only 34% are saving the maximum, compared to 42% of Millennials and 59% of Boomers.

While the proportion of participants who state that they are not on track for retirement has remained steady, the COIVD-19 pandemic appears to have deepened their concerns for their retirement. 53% of those not on track cite the impact of the pandemic on their retirement savings as a reason.

Significantly, while Boomers are more optimistic than Gen Xers, 59% of those not on track cite the impact of the pandemic as a reason, as opposed to 55% for Gen X and 42% for Millennials. This finding may support the belief that late career participants need to protect their downside exposure to volatility.

Retirees and guaranteed retirement income

Retirees have remained confident in their ability to make their savings last throughout retirement, dipping to 82% from 88% from the pre-pandemic survey.  Among retirees who are not confident:

Pulse not confident

For illustrative purposes only

Among the more interesting considerations to be drawn from the survey are about guaranteed retirement income:

58% of retirees with a guaranteed income stream (such as a pension) stated that they are more appreciative post-pandemic.

In addition:

  • 60% of retirees stated they would have “benefited a great deal” from having a guaranteed income stream, as opposed to 50% in the prior survey.
  • 45% find the idea of a fund whose balance converts automatically to guaranteed income “very appealing” compared to 33% previously.

The increased appreciation for guaranteed income among those currently navigating retirement may be of interest to participants currently saving for their own retirement. However, a hidden negative amid the general confidence of most participants may be that interest in income products is down post-pandemic.

Currently, 72% of participants report interest in selecting investment options that generate income, in contrast to 78% previous. Additionally, participants considering investing in an annuity after it was recommended by their advisors has dropped from 48% to 26%.

The shift may not be that surprising when we consider one of the principle behavioral barriers individuals have against buying income products: loss of liquidity. It may be expected that in the immediate aftermath of a market drop, participants may overvalue flexibility over long term income certainty.

Survey takeaways:

Plan sponsors seeking to help their participants respond to the COVID-19 market volatility may be encouraged by their willingness to stay confident and stay focused on their retirement savings. They may want to consider, however, responding to key participant cohorts or delivering focused messages, including:

  • Recognizing that participants who already feel off track are likely more deeply concerned that they were a few weeks ago.
  • Gen X participants may have unique needs. Plan sponsors may want to consider focused communication efforts to address their concerns about retirement readiness.
  • Practical insight into the possible benefits of guaranteed retirement income based on the experience of current retirees.