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Survey Says: Middle-Class Americans Aren’t Saving For Retirement

A new poll conducted by Wells Fargo has affirmed what other recent surveys have already found: many Americans are putting off saving for retirement, and a significant percentage of people have no retirement savings at all.

This survey is of interest because it focused specifically on middle-class Americans.

The results:

Forty-one percent of middle-class Americans between the ages of 50 and 59 are not currently saving for retirement. Nearly a third (31%) of all respondents say they will not have enough money to “survive” on in retirement, and this increases to nearly half (48%) of middle-class Americans in their 50s. Nineteen percent of all respondents have no retirement savings. On behalf of Wells Fargo, Harris Poll conducted 1,001 telephone interviews from July 20 to August 25, 2014 of middle-class Americans between the ages of 25 and 75 with a median household income of $63,000.

Sixty-eight percent of all respondents affirm that saving for retirement is “harder than I anticipated.” Perhaps the difficulty has caused more than half (55%) to say they plan to save “later” for retirement in order to “make up for not saving enough now.” For those between the ages of 30 and 49, 59% say they plan to save later to make up retirement savings, and 27% are not currently contributing savings to a retirement plan or account.

Sixty-one percent of all middle-class Americans, across all income levels included in the survey, admit they are not sacrificing “a lot” to save for retirement, whereas 38% say that they are sacrificing to save money for retirement.

[…]

While a majority of middle-class Americans say that they are not sacrificing a lot to save for retirement, 72% of all middle-class Americans say they should have started saving earlier for retirement, up from 65% in 2013. When respondents were asked if they would cut spending “tomorrow” in certain areas in order to save for retirement, half said they would: 56% say they would give up treating themselves to indulgences like spa treatments, jewelry, or impulse purchases; 55% say they’d cut eating out at restaurants “as often”; and 51% say they would give up a major purchase like a car, a computer or a home renovation. Notably, fewer people (38%) report that they would forgo a vacation to save for retirement.

The survey also asked people how much money they had saved:

According to the survey, middle-class Americans have saved a median of $20,000, which is down from $25,000 in 2013. Middle-class Americans across all age groups in the study expect to need a median savings of $250,000 for retirement, but they are currently saving only a median amount of $125 each month. Excluding younger middle-class Americans who may be earning less money, respondents between the ages of 30 and 49 are putting away a median amount of $200 each month for retirement, whereas those between the ages of 50 and 59 are putting away a median of $78 each month for retirement.

Twenty-eight percent of all age groups included in the survey report that they have a written financial plan for retirement. That number is slightly higher, 34%, for those between the ages of 30 and 39. People with a written plan for retirement are saving a median of $250 per month, far greater than the median $100 per month that is being saved by those without a written plan.

The entire report can be read here.

Photo by www.SeniorLiving.Org

Massachusetts Pensions Reach $170 Million Settlement In Lawsuit Against Fannie Mae

Two Massachusetts pension funds have been leading a class action lawsuit against Fannie Mae, accusing the firm of securities fraud that caused shareholders to lose money.

On Monday the pension funds, the Pension Reserves Investment Trust and the Boston Retirement Board, said they had reached a $170 million settlement with Fannie Mae.

From the Boston Globe:

The Massachusetts state pension fund announced Monday a proposed $170 million settlement in a class-action lawsuit brought in 2008 against the Federal National Mortgage Association, known as Fannie Mae.

The state fund, called the Pension Reserves Investment Trust, was co-lead plaintiff in the lawsuit, with the Boston Retirement Board. It’s not yet clear how much the state and Boston funds will receive from the proposed settlement, which includes thousands of stockholders.

“We are proud to have helped negotiate a meaningful recovery for Fannie Mae investors by stepping forward in this case,” Michael Trotsky, executive director of the $60.7 billion state fund, said in a statement. “Pursuing meritorious litigation where we believe we can add value” is part of the fund’s overall strategy, he said.

[…]

The lawsuit was filed in federal court in the Southern District of New York and alleged that shareholders lost money due to securities fraud by Fannie Mae and two of its former officers between Nov. 8, 2006, and Sept. 5, 2008.

Specifically, the lawsuit alleged that the defendants made false and misleading statements concerning the company’s internal controls and its exposure to subprime and other risky mortgage loan products.

A separate lawsuit brought previously by other plaintiffs against Freddie Mac had failed.

The proposed settlement must be approved by the court. If approved, a court-appointed administrator would oversee the claims and the divvying up of the recovered money.

The Boston Retirement Board manages $4 billion in assets. The Pension Reserves Investment Trust manages $53 billion in assets.

Photo by 401kcalculator.org

How Confident Are Institutional Investors Right Now?

The results of a recent survey, conducted and released by Pyramis, indicate that institutional investors are more confident than ever about their investment returns.

But funds in Asia and Europe are much more optimistic about market volatility than their counterparts in Canada and the U.S.

The survey of 811 pension fund managers found that Canadian pension funds were the most pessimistic of the bunch about future markets.

From Chief Investment Officer:

Despite the return of volatility, confidence in meeting investment goals has resurged as more than nine in 10 institutional investors said they would hit their targeted returns.

Some 91% of 811 investors told a survey, run by fund manager Pyramis, they believed their goals would be hit over the next five years, a large increase on the 65% who said the same in the company’s 2012 survey.

“While the travails of 2008 are far back enough for investors to feel significantly more confident that they will hit their five-year investment targets for their assets, they still remain concerned that there will be a return to volatility, as has been the case in recent weeks,” said Nick Birchall, head of UK institutional business at Fidelity Worldwide Investment, which distributes Pyramis’ products outside North America.

[…]

Volatility cast the longest shadow on institutional investors, according to the survey. Some 22% cited it as their top concern, while investors in the UK were the most nervous, with 31% saying it was their biggest worry.

However, their peers in the US were also concerned by erratic market moves.

Just 7% of US investors agreed with the following statement: “Volatility is decreasing and market bubbles/crashes will become less frequent.”

Some 10% of their Canadian neighbours agreed, while European and Asian investors took the opposite view, with 79% and 91% respectively thinking the statement was dead on the money.

It’s important to note that the survey was conducted back in June, before recent bouts of market volatility.

Canadian pension funds showed some impressive clairvoyance, as they were by far the most pessimistic of the group back in June: 6 out of 10 Canadian respondents said they anticipated increased market volatility in the near future.

From the Business News Network:

The survey, conducted in June and July, found 60 percent of Canadian pension fund managers believe that over the long term, “volatility is increasing and market bubbles/crashes will become more frequent,” while 42 percent in the U.S. agreed with the statement. However, only 4 percent of pension managers in Europe and 5 percent in Asia agreed volatility is increasing.

The survey included 90 Canadian pension funds representing about 25 percent of all pension plan assets in Canada, Pyramis said.

Mr. Young said he believes the findings reflect the broader global focus of Canadian pension funds, saying funds in other regions are often more inward-looking and focus more on their regional markets. They may have responded based on a consideration of their own local economies, while Canadian pension funds may have been assessing the volatility more broadly in all major markets, he said.

“I do believe that Canada has a very unique and global perspective compared to most countries,” [Pyramis vice-chairman] Mr. Young said.

Video: CalSTRS CIO Talks Long Term Investing And Handling Market Volatility

[iframe src=”<iframe src=”http://player.theplatform.com/p/2E2eJC/nbcNewsOffsite?guid=c_closingbell_calstrsamp_141024″ width=”635″ height=”500″ scrolling=”no” frameborder=”0″></iframe>”]

Chris Ailman, CIO of the California State Teacher’s Retirement System, sat down with CNBC last week to talk about handling market volatility, re-balancing the fund’s portfolio and being a long-term investor.

Ailman also talks about why CalSTRS invests in hedge funds and why that won’t be changing any time soon.

Video credit: CNBC

Alaska Pension Explores Investments In Medical Offices, Other Real Estate

The Alaska Retirement Management Board, the entity that manages investments for the state’s largest pension plans, is looking to shift money out of its REIT portfolio into private real estate investments. The Board has its eye on medial officer buildings.

From IPE Real Estate:

Steve Sikes, state investment officer, said the fund is yet to decide how much capital will be moved from REITs.

“REITs are viewed as a potential funding source for private real estate investments because we are at the high end of the target range for public real estate securities in the portfolio,” he said.

Alaska’s REIT portfolio accounts for 21.1% of its total real estate portfolio. As of June, the REIT portfolio – valued at $322m (€254m) – returned 12.95%, against the FTSE NAREIT All Equity REITs Index of 13.02%.

The fund’s investment staff will explore new private investments in medical office buildings, value-added and opportunistic funds, as well as participating mortgage investments – which would be a new strategy for Alaska.

“Up to now we have not invested in this strategy,” said Sikes. “It offers the potential for higher returns with an attractive income component.”

The LaSalle Medical Office Fund II, which is now being wound down, has given the Alaska an insight into the sector that it believes offers good income.

“Value-add/opportunistic and participating mortgage investments are categories of real estate investments that may create attractive returns,” said Sikes.

Alaska could invest additional capital through core separate account managers – depending on the sale of non-strategic assets at attractive prices. Sikes said he could not predict the amount of property it would sell.

The pension fund is looking to increase its exposure to core markets with high barriers to entry.

The Alaska Retirement Management Board manages $26 billion in assets for five of the state’s retirement plans, including the Public Employees’ Retirement System and the Teachers’ Retirement System.

Detroit Bankruptcy Judge Asks: Why Should City’s Pensioners Should Get Better Treatment Than Its Creditors?

Closing arguments are underway in Detroit’s bankruptcy trial. But even if the trial is almost over, the drama isn’t.

Judge Steven Rhodes wondered aloud on Monday whether the city’s pensioners were getting more favorable treatment than its creditors – pension benefits were cut as part of the bankruptcy deal, but those benefits could be restored in the future.

From the Detroit Free Press:

Judge Steven Rhodes today pressured Detroit’s bankruptcy attorneys to justify better treatment for pensioners than financial creditors, making for an unexpectedly dramatic exchange during closing arguments of the city’s historic bankruptcy trial.

In a discussion of the complicated math underpinning the city’s financial projections, Rhodes noted that pensioners could eventually get all their pension cuts restored if the city’s pension investments perform well over the next several years.

“Tell me why that isn’t a 100% recovery,” Rhodes told Detroit bankruptcy lawyer Bruce Bennett.

“The math gets a little tricky here,” Bennett responded.

The exchange underscores the importance of the unfair discrimination issue in Detroit’s bankruptcy. Although all major creditors have struck settlements, bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) argued earlier in the case that pensioners were getting extraordinarily favorable treatment.

[…]

Bennett said the largely amicable [pension] plan is “very remarkable” after a tumultuous negotiation period with retirees, insurers, bondholders and unions.

“We had litigation with everybody about something,” Bennett said.

He said the plan of adjustment is feasible and concluded that raising taxes to pay off debts was not workable, in part because the city has reached its legally allowable property tax rate.

“It’s frankly easy to decide taxes should not be increased. The harder question is, should taxes be reduced?” Bennett said.

Core to the city’s bankruptcy restructuring plan is the grand bargain, which Bennett defended. The plan aims to shield the city-owned Detroit Institute of Arts from having to sell masterworks while also providing the equivalent of $816 million to reduce pension cuts to city workers and retirees.

As part of Detroit’s bankruptcy, civilian pensioners accepted 4.5 percent cuts to monthly benefits and the elimination of COLAs.

Police and Fire retirees saw their COLAs reduced from 2.25 percent to 1 percent.

Inside Arkansas Pension’s Farmland Portfolio

Money managers, venture capitalists and institutional investors are increasingly donning their straw hats and getting to work in rural America.

Investments in farmlands have been on the rise. The Arkansas Teachers’ Retirement (ATRS) System, for example, has invested $73 million in farmland in the last four years.

Arkansas Business takes a peek inside ATRS’ rural investments:

“To us, farmland is like a pure Arkansas-flavored investment,” said George Hopkins, ATRS executive director. “Our only regret is that we weren’t there 10 years ago.”

The state’s largest pension fund has invested about $73 million in 14,580 acres of cropland since it began building its roster of farm holdings four years ago.

ATRS owns nine farm properties scattered from Indiana to Idaho and from Wisconsin to Florida.

The May acquisition of Dawson Farms added a new crop to a roster that includes organic oranges, sugar beets, barley, alfalfa, kidney beans and popcorn as well as mainstays such as rice, wheat, corn and soybeans.

ATRS intends to allocate up to 1 percent of its nearly $14.7 billion-asset investment portfolio to agriculture property.

“We think that’s 1 percent that will provide quality returns over time,” Hopkins said.

The agri properties are a subset of the pension fund’s $1.6 billion real estate segment. The biggest chunk of that is almost $1.2 billion worth of retail, office, industrial and apartment investments. Timber property accounts for about $347 million more.

ATRS has adopted the low-risk role of landlord with its farm investments. Purchased for cash, the properties are leased for crop production that generates a reliable flow of income.

Why farmland? ATRS explains:

ATRS officials began to explore agriculture property as an avenue to further diversify its investments in early 2010.

“It’s not uncommon for people to ask us to look at doing this or doing that and investing with them,” Hopkins said. “Along the way, we were asked, ‘Have you ever thought about investing in agriculture?’

“After a while it became clear we needed to be investing in farmland. It’s a great inflation hedge, a slow and steady performer that is outside the stock market.”

Here’s a summary of ATRS’ farmland portfolio:

	Investment	Acres	Primary Crops
Bridge Farm, Idaho	$16.2 million	4,241	Barley, sugar beets
Dundy Farm, Nebraska	$11.8 million	2,317	Wheat, corn, kidney beans, popcorn
Darlington Ridge Farm, Wisconsin	$10.9 million	1,537	Alfalfa, corn
Duvall Farm, Cross County	$9.9 million	2,801	Soybeans, rice
Dawson Farms, Louisiana	$8.2 million	1,596	Sweet potatoes, corn, soybeans
80 Foot Road Grove Farm, Florida	$6.6 million	463	Organic oranges
Wright Farm, Indiana	$5.8 million	854	Corn, wheat
Miller Farm, Prairie County	$3.1 million	771	Soybeans, rice
Total	$73.2 million	14,580

Photo credit: Arkansas Business

New York Comptroller Candidates Spar Over Private Equity Pension Investments

In the race for New York State Comptroller, incumbent Thomas DiNapoli is guarding a comfortable 20-point lead in the polls.

But his challenger, political unknown Bob Antonacci, isn’t holstering his guns quite yet.

Both candidates over the weekend sparred about the place of private equity in New York’s pension portfolio.

Under DiNapoli, New York’s Common Retirement Fund (CRF) allocates 8 percent of assets to private equity. Antonacci thinks that’s far too much.

From the New York Post:

DiNapoli’s challenger in the state comptroller’s race warned that private-equity investments look good now, but can turn bad very quickly.

“Private-equity investments can be very risky,” says Republican Bob Antonacci.

He agrees that it is a good idea to diversify state retirement portfolios beyond stocks and bonds. But 8 percent in private equity is excessive, he says.

“I think the problem is that he (DiNapoli) is putting too much emphasis on risky investments,” Antonacci said.

He added that the comptroller is seeking out chancier investments because his goal is to obtain a 7.5 percent return a year. That, Antonacci adds, is an unrealistic expectation.

“We are taking chances on getting returns that aren’t going to be there in the long run,” Antonacci says.

DiNapoli’s office responded:

“The comptroller sees private equity as diversifying the investment portfolio and getting better investment returns,” says DiNapoli spokesman Matthew Sweeney.

[…]

The recent numbers show that using private equity reduces risk through portfolio diversification, DiNapoli’s spokesman said. That, he adds, reduces risk.

New York State and Local Retirement Systems earned 14.9 percent over the past decade on the private equity part of the investments, according to a new report from the Private Equity Growth Capital Council (PEGCC).

The State Comptroller oversees $181 billion in pension assets. Recent polls have DiNapoli leading Antonacci, 58 percent to 31 percent.

Photo by Awhill34 via Wikimedia Commons

Video: California CIO On Why He Thinks Divesting From Hedge Funds Doesn’t Make Sense

The above video features Sean Bill, CIO of Santa Clara Valley Transportation Authority and trustee for the City of San Jose. During the interview, he touches on CalPERS’ hedge fund exit, why he thinks the move was “political”, and the difficult of handling investments in-house.

Video from Chief Investment Officer magazine.

Do Older Americans Have Enough Money Saved To Last Through Retirement? An Analysis

Do older Americans have enough money saved to last through retirement? It’s a question asked often, but a definitive answer is hard to come by.

An article published in the October issue of Pension Benefits takes aim at answering that question using a metric called the Retirement Readiness Rating (RRR), developed by the Employee Benefit Research Institute.

The analysis, which originally appeared in the EBRI’s June newsletter, was conducted using several different scenarios; the first scenario and the resulting analysis can be seen in Figure 1, above. More on the results:

Figure 1 shows the results assuming that 100 percent of the simulated deterministic expenses are met; in other words, 100 percent of the average expenses (based on post-retirement income) for components likely to be encountered on a regular basis (e.g., food, housing, transportation). In addition to these relatively predictable expenses, the stochastic costs arising from nursing home and home health-care expenses are assumed to be covered in years when the model simulates their existence.

Note that in Figure 1, while 5 percent or less of those in the second-, third-, and highest-income quartiles would run short of money in the first year of retirement, more than 2 in 5 (43 percent) of those in the lowest-income quartile would, based on deterministic and stochastic costs. Moreover, by the 10th year in retirement (assuming retirement at age 65), nearly 3 in 4 (72 percent) of the lowest-income quartile households would run short of money, while fewer than 1 in 5 (19 percent) of those in the second-income quartile would face a similar situation. Only 7 percent of those in the third-income quartile and 2 percent of those in the highest-income quartile are simulated to run short of money within a decade.

By the 20th year in retirement (again, assuming retirement at age 65), more than 4 in 5 (81 percent) of the lowest income quartile households would run short of money, compared with 38 percent of those in the second-income quartile that would face a similar situation. Only 19 percent of those in the third-income quartile and 8 percent of those in the highest-income quartile are simulated to run short of money by the twentieth year. These values continue to increase until all households either run short of money or there are no surviving retirees. By the 35th year in retirement (age 100, assuming retirement at age 65), 83 percent of the lowest-income quartile households would run short of money and almost half (47 percent) of those in the second-income quartile would face a similar situation. Only 28 percent of those in the third-income quartile and 13 percent of those in the highest income quartile are simulated to run short of money eventually.

A summary of the full results:

The results presented in Figures 1 through 6 show that the years of retirement before Baby Boomer and Gen Xer households run short of money vary tremendously by:

Preretirement-income quartile.

The percentage of average deterministic costs assumed paid by the household.

Whether or not nursing home and home health-care expenses are included in the simulation.

However, even when 100 percent of average deterministic costs are paid by the household and nursing home and home health-care expenses are included (Figure 1), only the households in the lowest-income quartile eventually end up with a majority of the households running short of money during retirement.

Each of the six analyses with results presented in Figures 1 through 6 show the same stark conclusion: The lowest preretirement income quartile is the cohort where the vast majority of the shortfall occurs, and the soonest. When nursing home and home health-care expenses are factored in (Figures 1, 3 and 5), the number of households in the lowest-income quartile that is projected to run short of money within 20 years of retirement is considerably larger than those in the other three income quartiles combined. Indeed, as the results across multiple scenarios and assumptions show, the lowest-income quartile is the most vulnerable, while longevity and long-term care are the biggest risk factors across the entire income spectrum.

The full analysis, including all six scenarios, can be read in the October issue of the Pension Benefits, or the EBRI’s June newsletter.

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