There was volatility in August but also stability, according to two recent measures, but those seemingly contradictory findings do have one thing in common — they spell good news for retirement savings.
Volatility
While many were still taking a break for their summer vacations, a volatile August on Wall Street spurred higher than normal 401(k) participant trading activity.
According to the Alight Solutions 401(k) Index’s August 2019 observations, net trading activity for the month was the highest so far this year at 0.24% of balances, bringing the 2019 year-to-date total transfers as a percentage of starting balance to 1.54%. Alight tracks the 401(k) trading activity of more than 2 million people with more than $200 billion in collective assets, and issues monthly and quarterly reports detailing 401(k) trading volume, asset flows and market activity.
Additionally, Alight reports that there were six above-normal days in August—the highest monthly total since December 2018. This brings the 2019 year-to-date above-normal trading days to 23. A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
August was also the 19th month in a row that net trades have flowed from equities to fixed income, with 16 of 22 days favoring fixed income funds. Overall for 2019, 142 trading days (or 85%) have favored fixed income, while only 26 days (or 15%) have favored equity.
Trading inflows during the month went mainly to bond, stable value and money market funds, while outflows were primarily from large U.S. equity, target date and mid U.S. equity funds. Overall, bond funds received 50% of inflows for an Index value of $263 million. Stable value funds received 29% of inflows (or $150 million), while money market funds received 18% (or $94 million).
Large U.S. equity funds top the charts with the most trading outflows in August, coming in at 55% for an Index value of $291 million. Trailing behind were target date funds at 17% of outflows (or $92 million) and mid U.S. equity funds at 10% (or $55 million).
After reflecting market movements and trading activity, average asset allocation in equities decreased from 67.7% in July to 67.5% in August, according to Alight’s data, while new contributions to equities decreased slightly from 67.7% in July to 67.6% in August.
Not surprisingly, target date funds picked up the lion’s share of contributions in August, garnering 48% of contributions for a value of $559 million. Trailing behind were large U.S. equity funds at 20% (or $230 million) and international equity funds at 7% (or $84 million).
As for how the markets faired, equities fell during the month of August, with small U.S. equities (represented by the Russell 2000 Index) losing 4.9%, large U.S. equities (represented by the S&P 500 Index) falling 1.6%, and international equities (represented by the MSCI All Country World ex-U.S. Index) dropping 3.1%. Alight notes that fixed income investors fared better, with U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) gaining 2.6%.
Despite equities falling during August, the 2019 year-to-date data still shows the S&P 500 Index up 18.3% and the Russell 2000 Index up 11.9%.
But also Stability
Meanwhile, another study shows that working Americans appear to be holding their retirement contributions steady in 2019, even if many are not increasing their rate of savings.
According to Bankrate’s August Financial Security Poll, fewer than a third of working Americans (29%) have increased their retirement savings contribution rate compared to last year. Nonetheless, the percentage of Americans who are saving more has improved steadily throughout the economic recovery. The current rate is nearly double that of 2011, when just 15% of workers had stashed away more than in the previous year.
Only 16% of working Americans are saving less than last year – a figure that’s held relatively consistent between 13% and 18% since 2012, the firm notes. Nearly half of working Americans (46%) say they are saving the same amount as last year, while another 6% said they didn’t contribute to their retirement accounts in either year.
Bankrate observes that these results come on the heels of its survey in May finding that Americans’ biggest financial regret is not saving enough for retirement.
Not surprisingly, the survey shows that workers’ propensity to save for retirement increases steadily with income levels. The highest-income workers in the survey (those earning $75,000 or more annually) were twice as likely to have increased their savings rate compared with the lowest-income respondents (earning $30,000 or less), coming in at 41% to 20%, respectively.
For those who said they are saving less, they were four times more likely to be lowest-income respondents than the highest-income workers (26% to 6%). Of those contributing the same amount as last year, the level of income seemed to make little difference in their savings rate. All income groups reported between 44% and 47% of respondents saying they contributed the same as last year, the study notes.
Age also appeared to make little difference. The likelihood of higher contributions was consistent across ages 23-64, with older millennials (ages 30-38) being the most likely to say they increased their retirement savings rate (32%). Yet, for workers above age 65, contributions were more likely to have declined (23% versus 16%), as the number of hours worked tend to fall for those nearing retirement.
Respondents cited many reasons for why they weren’t saving more for retirement, but the most typical reason might not be what you’d expect.
The most common – at 24% of respondents – was that workers were comfortable with the level of their retirement savings or the amount they were contributing. Older Americans (ages 55 to 73) were more likely to offer this response than younger ones (ages 23 to 38) by nearly a 2-to-1 margin, 32% to 17%.
And when it comes to income, the highest-income earners were more than three times more likely to offer this reason than the lowest-income group (41% to 12%).
For many, the lower savings rate had to do with stagnant or declining income. Nearly a quarter of respondents (23%) named this factor, with lower-income households skewing heavily to this reason at 34%.
Other top responses included 16% of respondents who said they are currently focused on another financial priority, while 12% mentioned rising household expenses as a barrier. Another 12% admitted they hadn’t gotten around to increasing their savings yet, while 8% named an unexpected financial emergency as their reason.
“Saving for retirement needs to be made a bigger priority for the millions of Americans that aren’t saving, got started late, or are behind on their retirement savings,” says Greg McBride, CFA, Bankrate chief financial analyst. He notes that the reasons cited for not increasing retirement contributions indicate “a continued lackadaisical approach to retirement savings,” further observing that some Millennials are missing out on the biggest potential gains because they’re unable to take advantage of the power of compounding.
The Bankrate study was conducted via telephone by SSRS from July 23-28 and July 30-Aug. 4, 2019, among a sample of 2,016 respondents.
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