Investors Feel Affected by Social Security, Medicare Changes

Wells Fargo/Gallup Investor and Retirement Optimism Index plunges to -60 among retirees

PRINCETON, NJ -- Fifty-seven percent of U.S. investors say changes to Social Security and Medicare in order to reduce the federal budget deficit would have a major impact on their personal economic condition and future financial situation, according the Wells Fargo/Gallup Investor and Retirement Optimism Index poll. Social Security and Medicare changes tie gas prices as having the highest perceived personal impact among nine economic factors tested in the September poll.

How much impact do you think each of the following is having on your personal economic condition and future financial situation? September 2011 results

Slightly more retired (61%) than nonretired (56%) investors indicate that changes to Social Security and Medicare in order to reduce the deficit have a major impact on their personal economic condition and their future financial situation. Retirees are also more concerned than nonretirees about healthcare costs, by 61% to 51%, and about food prices, by 46% to 39%.

Understandably, nonretired investors are more concerned than retirees about their current employment (41% to 17%), confidence they will continue to have a job (38% to 16%), and college tuition costs (32% to 21%).

Investor Optimism Among Retirees Plunged More Than Among Nonretirees

Overall, investors became decidedly negative about the future direction of the U.S. economy, according to the September poll. Retired investors were more optimistic than their nonretired counterparts in May, but less optimistic as summer ended. Investor optimism among retirees plunged 121 points, from +61 in May to -60 in September. Nonretiree investor optimism also saw a significant decline, from +24 to -41.

Wells Fargo/Gallup Investor and Retirement Optimism Index, Among Retirees and Nonretirees, February-September 2011

The Wells Fargo/Gallup Investor and Retirement Optimism Index is a broad measure of investor perceptions that tends to be a precursor of future economic activity. The most recent index reading is consistent with a future decline in the overall U.S. economy. The index reached its record low of -64 in February 2009 -- just before the equity markets reached bottom in March 2009. It peaked at 178 in January 2000, just before the dot-com bubble burst. The index began monitoring retiree versus nonretiree optimism in February 2011.

Nonretirees Plan to Rely Less on Social Security

Nonretired investors intend to depend far more on their personal resources than do current retired investors. Sixty-four percent of investors yet to retire look to retirement accounts (401(k), IRA, Keogh) as major funding sources when they retire, followed by 34% who look to a work-sponsored pension plan, 32% who point to individual stock or stock mutual fund investments, and 26% who plan to rely on Social Security. In sharp contrast, 52% of current retirees say they depend on Social Security, followed by 44% for pension plans, 33% for retirement accounts, and 26% for stocks and stock mutual funds.

When you retire, how much do you expect to rely on each of the following sources of money -- will it be a major source of income, a minor source, or not a source at all? September 2011 results, among retired and nonretired investors

Healthcare Costs and Social Security Play a Major Role in When Investors Retire

Two in three nonretired investors rank healthcare costs as a key determinant of their financial ability to retire. Six in 10 say investment market conditions are a major factor that will determine when they are financially able to retire -- probably reflecting nonretired investors' planned reliance on their own resources to fund their retirement. More than half of investors also point to inflation, the solvency of Social Security, and energy prices, including gas and oil.

Key Factors Influencing When Investors Are Financially Able to Retire, September 2011

Medicare and Social Security Are Super Challenge for Supercommittee

During recent years, investors have faced increasing challenges as they attempt to build their retirement savings, or, if retired, to fund their retirement. Extremely low interest rates and the Fed's efforts to push investors into risk-taking by pushing Treasury interest rates lower across all maturities may be good for the overall economy, particularly as individuals and businesses rebuild their balance sheets. But low rates do not help savers grow their investments or retirees maintain their retirement income.

Further, the new Wells Fargo/Gallup poll results show one in four American investors are currently providing support for their adult children, while 1 in 10 are doing so for their parents. Another 1 in 10 are supporting other friends or extended family members. Four in 10 investors acknowledge that providing this financial support worries them as far as saving for their own retirement is concerned.

This survey of investors -- who represent roughly the upper third of income earners in the U.S. -- also shows that not only retirees but also nonretirees may be worried that changes to Social Security and Medicare will have a major impact on their personal economic condition and future financial situation. While current nonretirees expect to rely less on Social Security during retirement, potential changes may not only affect when nonretirees are able to retire but also the support they must extend to their retired parents and other relatives.

During recent months, political battles have intensified over the need to restrain the growth of federal entitlement spending. In this regard, politicians in Washington often argue that any changes to Social Security and Medicare will be made only in future years, without harm to retirees and those near retirement age. However, these discussions may not recognize the major effect any such changes -- or even the high-profile discussion of such changes -- may have on investors and other Americans at a personal level.

The so-called supercommittee is scheduled to issue its report on spending reforms, including entitlement and potentially taxes, within the next month. Gallup's investor survey results reinforce the idea that this group faces super challenges. It also suggests that political battles over such changes may have a major impact on retiree and nonretiree investor optimism in the future, just as August's debt ceiling battles seem to have had this summer.

Survey Methods

The Wells Fargo-Gallup Investor and Retirement Optimism Index results are based on telephone interviews conducted as part of Gallup Daily tracking Sept. 1-11, 2011, with a random sample of 880 nonretired and 614 retired U.S. adults, aged 18 and older, who have investable assets of $10,000 or more.

For results based on the total sample of nonretired investors, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points. For results based on the total sample of retired investors, one can say with 95% confidence that the maximum margin of sampling error is ±5 percentage points.

For results based on the sample of 958 investors, the maximum margin of error is ±3 percentage points.

Interviews are conducted with respondents on landline telephones and cellular phones, with interviews conducted in Spanish for respondents who are primarily Spanish-speaking. Each sample includes a minimum quota of 400 cell phone respondents and 600 landline respondents per 1,000 national adults, with additional minimum quotas among landline respondents by region. Landline telephone numbers are chosen at random among listed telephone numbers. Cell phone numbers are selected using random-digit-dial methods. Landline respondents are chosen at random within each household on the basis of which member had the most recent birthday.

Samples are weighted by gender, age, race, Hispanic ethnicity, education, region, adults in the household, and phone status (cell phone only/landline only/both, cell phone mostly, and having an unlisted landline number). Demographic weighting targets are based on the March 2010 Current Population Survey figures for the aged 18 and older non-institutionalized population living in U.S. telephone households. All reported margins of sampling error include the computed design effects for weighting and sample design.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

For more details on Gallup's polling methodology, visit

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