U.S. Investor Optimism Declines as a Majority of U.S. Investors Fear Spending Slowdown Now, and Recession in 2013, If “Fiscal Cliff” Issues Aren’t Resolved

Overall U.S. investor optimism declined to +16 in July, down from +24 in May and +40 in February, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. The decline was driven by increased investor pessimism about the future course of the overall economy. Non-retired investors showed the greatest slide in optimism–down ten points from May–while retired investor optimism remained flat. Forty-one percent of all investors say now is a good time to invest in the markets as opposed to 48% in May and 52% in February.

The so-called “fiscal cliff” is on the minds of many investors, with 54% saying they are paying a “great deal” or “quite a lot” of attention to the issue. If Congress doesn’t address the fiscal cliff, 61% think the U.S. economy will go into recession next year. Also, 71% of investors say “concern” about the fiscal cliff will force consumers and businesses to pull back on spending and investing, which is likely to slow the U.S. economy in the second half of 2012.

“People watched the impasse of the debt ceiling negotiations last summer and the effect the breakdown had on the markets and 401(k) balances, so it makes sense that investors are attuned to policy affecting debt and taxes. Investors are clearly telling us they worry about a recession,” said Joe Ready, Director of Wells Fargo Institutional Retirement and Trust.

Election’s Impact on Net Worth and Investment Climate

Three in four investors say the presidential and congressional elections of 2012 will impact their net worth; 43% say the election will have a major impact on their net worth, 33% say the election will have a minor impact, and 23% say the election will have no impact at all. Three in four investors also say the President, the Congress, and the private business sector combined bear responsibility for fixing the U.S. economy; 7% cite the President and 11% cite Congress as being solely responsible for addressing the country’s economic issues.

When asked to rate the factors affecting the investing climate, investors also rate a “politically divided federal government” as a top factor affecting the investing climate; 69% share this view, up from 64% in May. Investors cited divided government as a greater factor affecting the investment climate than the unemployment rate (67%) and the federal budget deficit (67%).

Earnings, Savings, and Investing in the Past Four Years

When asked to compare their financial position today to four years ago (prior to the 2008 election), 37% of investors say they are now better off, and 33% say they are worse off. Seventy-eight percent of investors say their household income either has increased (46%) or stayed the same (32%) since 2008. But only 24% of investors say they are saving more than they did prior to the recession, 43% say they are saving less money, and 32% say they are saving the same.

When asked to rank their most important savings priority, 41% of investors say “saving for retirement,” while 24% say building “emergency cash,” and 11% point to “saving for education.”

“It is a good trend to see that almost half of the non-retired investors report an increase in household income since 2008, but only one in four say they are saving more. Instead, almost half report a decrease in savings. We feel strongly that people save their way to a solid retirement, and this continues to be a challenge for Americans. I think that many assume that work will be part of ‘retirement,’ although the availability of jobs for people in retirement age is not certain,” added Ready.

Investors Say Retirees Need to Reinvent Themselves to Work in Retirement

Eight in ten investors (79%) say they think retired Americans need to “reinvent” ” themselves–that is, look for new types of employment as a retiree–rather than work in the same field they did before retiring.

While reinvention may be the new job strategy in retirement, there is a difference among investors regarding who expects to work during retirement years. More than half of non-retired investors (58%) and 10% of retired investors say they plan to work “part time” as a way of maintaining a comfortable living in retirement.

Investors are split about the availability of jobs for retirees. Nearly half (48%) say jobs are either “easily available” (8%) or “somewhat available (40%) for retired Americans who want to work in retirement; however, about as many investors say jobs are not “much available” (42%) or “not at all available” (5%). Half of investors (48%) say the job situation facing retired Americans is worse than it is for other Americans, and nearly two in three investors say the job situation for retirees is getting worse (63%).

Retirement Planning Among Investors – Both Retired and Non-Retired

Fifty percent of non-retired investors say they have “guessed” at the savings they will need for retirement, while 48% say they have made a more thoughtful calculation. Thirty-one percent of non-retired investors say they have a specific written plan for retirement, up from 28% percent in May and 26% percent a year ago. Thirty-five percent of retired investors say they have a written plan, down from 42% a year ago. Eighty-seven percent of retired and non-retired Americans say having a financial plan with specific goals and targets gives them confidence they’ll meet their financial goals, up from 78% a year ago.

While half of non-retired investors admit to guessing about retirement, when asked to evaluate the major sources of retirement funding, investors say their funds will come from the following sources:

  • One in four (24%) of the non-retired say Social Security will be a major funding source for them in retirement, compared to 52% of retirees.
  • Two in three (69%) of the non-retired say their 401(k) will be a major source of retirement funding, compared to 27% of the retired.
  • Thirty-two percent (32%) of the non-retired expect pensions to be a major funding source for retirement, compared to 49% of retirees.
  • Thirty-five percent (35%) of the non-retired call stock investments a “major source” of retirement funding, compared to 27% of the retired.

Investors Are Building Rainy Day Funds

Eight in 10 non-retired investors (80%) say they have some kind of emergency fund. About a third of non-retired investors say their rainy day fund would provide them with three months or less of the funds they need to avoid serious financial jeopardy. Another 45% say their rainy day fund would last them less than a year, and nearly one in four (23%) say their rainy day fund would last longer than a year.

Six in 10 of the non-retired keep their rainy day fund in a checking account (13%) or a savings account (48%). Another 18% keep their rainy day fund in a short-term CD or money market account. Only 14% hold their rainy day fund in the form of stocks or bonds. Retirees have rainy day funds, too, and four in 10 retirees keep these funds in a checking account (15%) or a savings account (27%). Another 24% keep their funds in a short-term CD or money market account, and 20% hold their rainy day fund in the form of stocks or bonds.

Thirty-six percent of the non-retired say the percentage of funds they put into emergency or other short-term investments has increased over the past four years; 26% say the percentage has decreased, and 38% say it has remained unchanged. Eighteen percent of retirees say the percentage of funds they put into emergency or other short-term investments has increased over the past four years; 30% say the percentage has decreased; and 51% say it has remained unchanged.

About the Wells Fargo-Gallup Investor and Retirement Index

These findings are part of the Wells Fargo-Gallup Investor and Retirement Optimism Index, which was conducted June 30 –July 11, 2012. The sampling for the Index included 1,020 investors randomly selected from across the country with a margin of sampling error is +/- three percentage points. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. About two in five American households have at least $10,000 in savings and investments. The sample size is comprised of 74% non-retired and 26% retirees. Of total respondents, 61% had reported annual income of less than $90,000 and 39% of $90,000 or more. The median age of the non-retired investor is 46 and the median age of the retired investor is 67. The Wells-Fargo Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism that provides its historical data.

The Index had a baseline score of 124 when it was established in October 1996. It peaked at 178 in January 2000, at the height of the dot-com boom, and hit a low of negative 64 in February 2009.

About Wells Fargo Wealth, Brokerage and Retirement

Wells Fargo Wealth, Brokerage and Retirement (WBR) are one of the largest wealth managers in the U.S., with $1.3 trillion under management. WBR includes Wells Fargo Advisors, the third-largest brokerage in the U.S.; Wells Fargo Private Bank, serving high-net-worth individuals and families; Wells Fargo Family Wealth, serving ultra-high-net-worth families; and Wells Fargo Retirement, which manages $231 billion in 401(k) assets for 3.5 million Americans. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company.

About Wells Fargo (Twitter @WellsFargo)

Wells Fargo & Company (NYSE:WFC) is a nationwide, diversified, community-based financial services company with $1.2 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With approximately 270,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked No. 26 on Fortune’s 2012 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.

About Gallup

For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of people’s attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup’s current activities consist largely of providing marketing and management research, advisory services and education to the world’s largest corporations and institutions.

Note: Complete survey results and a chart showing the index movement are available upon request.

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Wells Fargo & Company
Allison C. Leong, 212-350-3824
Amy Hyland Jones, 704-383-4995
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