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Allianz: Economic Volatility Raises Doubts over Retirement and College Savings

Source: Allianz

Posted on 19 Oct 2011

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Given the recent economic and stock market volatility that has wreaked havoc on many Americans' savings, 51 percent of non-retirees now question whether 401(k), 403(b) and 457 plans are adequate ways to save for retirement, according to a recent survey from Allianz Life Insurance Company of North America (Allianz Life). Moreover, an alarming 27 percent feel that the safest place for any money left over after paying their expenses is underneath their mattress.

Americans are also cutting back on saving for their children's education, with 25 percent saying they have either reduced or stopped saving altogether for college.

Among non-retirees, nearly half (47 percent) feel their retirement savings habits have been impacted by the current economic environment. Nearly 20 percent have reduced spending on other things to keep saving for retirement at the same rate, and 30 percent have either decreased the amount they've been saving for retirement or have stopped saving all together. Additionally, more than one-quarter (28 percent) have not even started saving for retirement at all.

"Given the gut-wrenching events and market volatility of late summer, consumers are questioning traditional retirement savings vehicles and changing their savings habits," said Katie Libbe, Vice President of Consumer Insights at Allianz Life. "Recent events have only deepened the uncertainty many have felt about retirement since the market meltdown of 2008 when the average 401(k) account balance lost nearly 30 percent of its value."

ESRPs Top List of Investment/Retirement Products

Currently, 61 percent of U.S. non-retirees own investment/retirement savings products such as employer-sponsored retirement plans (ESRPs), stocks/bonds/mutual funds, pensions or annuities; 39 percent do not own any of these. Topping the list of investment/retirement savings products are ESRPs (401(k), 403(b) and 457 plans), with nearly half (47 percent) of non-retirees owning them. Stocks, bonds or mutual funds outside of ESRPs are held by 27 percent of non-retirees.

College Savings Takes a Hit

The economic environment is also leading to cutbacks in college savings. While 25 percent are contributing less or have stopped saving entirely, a troubling four-in-10 (44 percent) have not started saving for their children's college education at all. A meager 15 percent have reduced spending on other things to keep saving/paying for their children's college educations.

"This could mean that students will have to be more creative in their use of grants and loans in order to make up potential shortfalls," said Libbe.

Retirement vs. College Savings – Men vs. Women

Nearly half (46 percent) of non-retirees feel saving for retirement is an equal priority to saving for their children's college education. While 22 percent feel saving for college takes priority over retirement, 32 percent think otherwise, ranking retirement as a higher priority.

"Retirement and college savings often draw from the same bucket of available funds, and people have a hard choice to make," said Libbe. "Our research shows that lower income households feel paying for their children's education takes priority over saving for their own retirement. We also found that between the sexes, 39 percent of men placed saving for their own retirement ahead of saving for their children's college education, versus 27 percent of women. Conversely, 53 percent of women felt that retirement and college savings were equal priorities, versus 37 percent of men.

"The toll taken by recent economic volatility has yet to be fully calculated, but one thing is certain: it has directly impacted how people are approaching saving for retirement and college."

About Allianz Life

Allianz Life Insurance Company of North America has been keeping its promises since 1896. Today, it carries on that tradition, helping Americans achieve their retirement income goals with a variety of annuities and life insurance products. As a leading provider of fixed index annuities, Allianz Life is part of Allianz SE, a global leader in the financial services industry with nearly 155,000 employees worldwide. Based on its revenue, Allianz SE is the 20th largest company in the world (Fortune Global 500, August 2010).