Contradictory indicators, inside and outside of retirement plans
In May, the Dow Jones Industrial Average rose almost 7%, gaining back some of its losses since the February high. With daily numbers of COVID-19 cases and deaths declining¹ and states opening up, consumer confidence² and consumer spending³ also went up; the unemployment rate even improved.⁴
But the overall numbers were still troublesome, with many millions of Americans having suffered from either the virus itself or from being furloughed or laid off.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act offers several lifelines to help people make it through the financial pain of the pandemic, including through their retirement plans. When we look at the actions being taken by our retirement plan participants, we see some of the same trends that we find in the economy—some indicators of a return to normal, but also growth in the use of the CARES Act’s retirement plan provisions and a search for investment security.
Most participants are taking a hands-off approach with their retirement plans
Since the pandemic began, more than 9 in 10 of our participants have left their retirement plans alone.
After an increase in March, web traffic and call volume into our service center have both come down. Within the calls, inquiries about coronavirus-related distributions (CRDs) and other CARES Act provisions continued to grow, with CRDs representing 16% of call volume in May and CARES Act loan and required minimum distribution (RMD) calls making up another 2% of calls.
Although the amount of our participants taking CRDs grew 415% from April to May, it’s still quite low, with less than 1% of our participants having taken a CRD. The average CRD amount taken is $21,304—in the two months combined—well short of the $100,000 limit.
In May, the percentage of participants lowering their contributions declined to 2.3%. This made May 2020 look more like May 2019—when 2.0% lowered their contributions—than March 2020, when 3.4% of participants lowered their contributions.
Few made investment changes, but those who did sought security from market volatility
We see other encouraging signs as well, with most participants leaving their investments alone. After we did a focused multimedia campaign to help participants understand short- and long-term savings strategies and how to weather market volatility, we saw that only 1.23% of our participants made changes to their investments in March; in May, that number declined to 0.36% of participants.
Among those who reallocated their investments, however, we saw some interesting changes. Since the market volatility began, most participants had made glide path types of changes—with younger people generally staying in the stock market and older people generally becoming more conservative. In May, we saw a huge increase in people moving to more conservative stable value and other fixed-income investment options.
Top investment changes
|Stayed in the market, diversifying into equities, target-date funds (TDFs), or diversified funds or rediversified||33%||45%||40%|
|Moved money into stable value/fixed-income funds||32%||23%||40%|
|Moved from stable value/fixed-income funds into diversified funds or TDFs||36%||31%||20%|
In May—among those who made changes—the same number moved to stable value from stock market investments as stayed in the stock market; far fewer left stable value and fixed income to invest in the stock market.
In a surprise twist, the move to stable value was driven by participants younger than age 30.
In April, 9% of people below age 30 who made a change moved from stock market investments to stable value and fixed income, but in May, 43% did so (a more than fourfold increase).
Many younger participants sought more conservative options in May
|Younger than age 30||April 2020||May 2020|
|Stayed in the market, diversifying into equities, TDFs, or diversified funds or rediversified||74%||47%|
|Moved money into stable value/fixed-income funds||9%||43%|
|Moved from stable value/fixed-income funds into diversified funds or TDFs||17%||11%|
It seems that, as the market rose closer to its previous high, many (young) investors saw the opportunity to put more of their portfolio into more conservative investments. Generally, many millennials in our plans are overly allocated to fixed income. These are the children who saw their parents’ portfolios take a hit in the 2008/2009 recession and who may be trying to protect their portfolios from the same fate.
Uncertainty highlights the value of education and guidance
The contradictory themes of May are likely to change as the summer progresses and until we see the pandemic itself coming to a more definitive close. Less likely to change are the importance of education and guidance—and financial professionals can help with both. Despite the good market news in May, it’s likely to continue to fluctuate, and participants who understand the dynamics can make better decisions. If they need to tap their retirement plans for some extra cash, the guidance of a trusted professional can steer them toward caring for the immediate need without stealing unnecessarily from their future.
1 “Daily Updates of Totals by Week and State,” National Center for Health Statistics, Centers for Disease Control and Prevention, 6/17/20. 2 “Consumer confidence rises unexpectedly in May as economy reopens,” cnbc.com, 5/26/20. 3 “Consumer spending comes back 'with a vengeance' in May,” Yahoo! Finance, 6/17/20. 4 “The Employment Situation, May 2020,” U.S. Bureau of Labor Statistics, 6/5/20.
All data is John Hancock’s internal data, as of 5/31/20. As of 3/31/20, the open-architecture platform included approximately 1.3 million participants and 1,963 plans.
Fund categories were defined as target-date fund, stable value/fixed income, growth and income, equity, asset allocation, and other. A participant in ≥2 fund categories was labeled as diversified. A participant who changed from ≥2 fund categories to ≥2 other categories or asset allocation alone was labeled as having rediversified.
For complete information about a particular investment option, please read the fund prospectus. You should carefully consider the fund's objectives, risks, charges, and expenses before investing. The prospectus contains this and other important information about the investment option and investment company. Please read the prospectus carefully before you invest or send money. Prospectuses may only be available in English.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements
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