CHARLOTTE, N.C.--(BUSINESS WIRE)--

The Wells Fargo/Gallup Investor and Retirement Optimism Index is at a 16-year high following a 30-point increase from fourth-quarter 2016 to +126 in the first quarter. Investors are now the most optimistic they have been about the U.S. investment climate since the dot-com boom in November 2000, when the index was +130.

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Wells Fargo/Gallup: Investor and Retirement Optimism Index Q1 2017 (Graphic: Business Wire)

The survey was conducted by telephone with 1,007 U.S. investors Feb. 10-19, just days after the Dow Jones Industrial Average crossed the 20,000 mark for the first time and as the bull market was reaching its historic eighth year.

Of the two dimensions of the index, the economic dimension — measuring investor optimism about economic growth, unemployment, the stock market and inflation — advanced the most this quarter, rising 20 points to +46. Most of this came from investors feeling more upbeat about stocks and economic growth. The personal dimension — measuring investors’ outlook for their income and investments — rose 12 points to +80, with slight increases among all components.

In line with their greater confidence, 60% of investors say now is a good time to invest in the financial markets. This is up from 52% in late 2016 and is the highest the Wells Fargo/Gallup investor poll has recorded since early 2011.

Most Investors Not Expecting a Tax Cut

As investors wait for Washington to act on tax reform, more investors (39%) expect the percentage of income they pay in taxes to go up in the next few years than expect it to go down (29%). About a third, 31%, think their tax rate will stay the same.

When asked what they would do with the money if their tax bill were to be cut by a few thousand dollars, nearly half of investors (47%) say they would use it to increase their savings or investments. The next most likely action would be to pay down debt (24%). Using it to make special purchases or “something else” are tied at 10%. Just 8% say they would use it for everyday spending.

“Although it’s great to see investors are optimistic about financial markets and retirement security overall, it’s especially noteworthy that seven out of 10 would improve their financial health through either saving and investing or paying down debt as a result of a potential tax cut,” said Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “Saving and investing enough is the number-one factor that will drive retirement outcomes.”

Higher Interest Rates Could Lure Some Investors away from Stocks

Prior to the Federal Reserve’s recent decision to raise the federal funds target rate by 25 basis points, investors were evenly divided over the effect raising interest rates this year would have on the economy: A third (32%) said higher rates would be good, another third (34%) called them bad, and another third (32%) said they would not make much difference.

In terms of how interest rates might affect their own investing behavior, 37% of investors say higher interest rates would make them very or somewhat likely to transfer money out of the stock market and into more conservative investments. This is up from 23% two years ago, when Gallup last asked this question.

Retired investors are more positive about the economic impact of higher interest rates: 37% say they would be good for the economy while 26% say they would be bad. Non-retired investors tilt the other way, with 37% believing higher rates would be bad and 31% good. These differences are consistent with retired investors’ greater reliance on interest income, compared with non-retired investors’ greater dependence on mortgages and other loans for which lower rates are preferable.

More Investors Feeling Confident about Their Retirement Security

The new poll finds 78% of investors, up from 69% in the prior measurement in 2014, feeling confident they will have enough money to maintain the lifestyle they want throughout retirement, perhaps a byproduct of the continued bull market. This includes 31% feeling “highly confident,” up from 26% in 2014. Meanwhile, the percentage not confident has fallen from 31% to 22%.

One significant factor plays a role in degrees of confidence: having a written plan. Forty-three percent of investors with a written plan for retirement say they are “highly confident” they will have enough to maintain their lifestyle. Even among investors with similar asset levels, confidence is higher among those with a written plan. By contrast, just 23% of investors with no written plan feel highly confident.

Investors are less worried today than three years ago that they will outlive their savings in retirement: 36% now vs. 46% in 2014 think this is a real risk. As is typical, a higher percentage of non-retired (39%) than retired investors (28%) are worried about outliving their savings.

“Although we are experiencing rising account values and optimism, it’s important not to underestimate the importance of a thoughtful strategy and a written plan not only for saving and investing, but also for drawing down funds in retirement given the complexities of longevity, taxes, and when to begin Social Security benefits,” said Ready.

Less Than Half of Investors Have a Written Financial Plan

Just 37% of non-retired investors and 40% of retired investors report that they have a written financial plan. This is similar to what the investor survey recorded in 2015, indicating investors haven’t made progress in this important area.

Investors with $100,000 or more in investments are more likely than those with less than $100,000 invested to have a written plan: 48% vs. 26%. Also married investors (42%) are more likely than unmarried investors (29%) to have a written plan.

“We’ve seen strong evidence around the power of having a written plan, wherever you fall on the income spectrum. Whether you use a tool online to construct a plan or work with an advisor, it drives confidence and helps inform decisions about budgeting and saving,” said Ready. “It’s hard to know where you’re going without a road map.”

Few Investors Have Given Sufficient Thought to Retirement Age

Anchoring one’s financial goals to a specific retirement age is a key aspect of any well-prepared financial plan. Yet only 28% of non-retired investors say they have given a lot of thought to the best age to retire. Another 30% say they have given this a fair amount of thought. Still, 31% say they have given this only a little thought and 11% admit they have given a potential retirement age no thought.

Only four in 10 (39%) non-retired investors age 50 and older say they have given retirement age a lot of thought. This number drops to 20% of those under 50 who say they have given it a lot of thought.

“The actual age you retire is a really important factor in determining your monthly income and how long it will last. The sooner you start to plan your retirement age, the more you can control while you still have a long runway ahead of you to make adjustments to your strategy,” said Ready.

Which of seven different steps have non-retired investors taken to help determine their best retirement age?

• 63% discussed it with friends and family
• 59% estimated their retirement income using different retirement age scenarios
• 51% manually crunched the numbers
• 50% used online tools to estimate their retirement income
• 47% talked with a professional financial advisor about it
• 44% read up on retirement-age considerations in financial publications
• 30% reviewed their options for retirement age on the Social Security Administration website

A slight majority of non-retired investors (54%) believe that knowing the age at which they plan to retire would make a difference in their financial behaviors today; 45% say it would not.

The importance of giving early thought to retirement age is underscored in the responses of retired investors. More than half of them, 52%, wish they had started thinking about their retirement age earlier than they did, whereas 46% say they gave themselves enough time.

About three in 10 (28% of) retired investors were advance planners, starting to think about their best retirement age before they turned 40. Another 20% were on track, starting to focus on it in their 40s. However, more than four in 10 (25%) waited until they were in their 50s or 60s (16%). Overall, the average age retired investors say they started thinking seriously about the best age to retire was 44.

For more information, read Five Ways Rising Interest Rates Could Affect Investors (PDF) from Wells Fargo Investment Institute.

See also New study: Planners have the edge in retirement saving on Wells Fargo Stories.

About the Wells Fargo/Gallup Investor and Retirement Optimism Index

These findings are part of the Wells Fargo/Gallup Investor and Retirement Optimism Index, which was conducted Feb. 10-19, 2017, by telephone. The Index includes 1,007 investors randomly selected from across the country with a margin of sampling error of +/- four percentage points. For this study, the American investor is defined as an adult in a 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 71% non-retirees and 29% retirees. Of total respondents, 44% reported annual income of less than $90,000; 56% reported $90,000 or more. 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 median age of the non-retired investor is 46 and the retiree is 69.

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

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 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 8,600 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 42 countries and territories to support customers who conduct business in the global economy. With approximately 269,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 27 on Fortune’s 2016 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially. News, insights and perspectives from Wells Fargo are also available at Wells Fargo Stories.

About Gallup

Gallup delivers analytics and advice to help leaders and organizations solve their most pressing problems. Combining more than 80 years of experience with its global reach, Gallup knows more about the attitudes and behaviors of employees, customers, students and citizens than any other organization in the world.

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