Demand for Increased Personalization Could Come from Younger 401(k) Participants

March 6, 2024 — Boston

Recordkeepers can distinguish themselves from their peers by offering solutions that integrate personalization within their target-date fund offerings

The momentum behind personalized retirement outcomes may come from younger generations. According to The Cerulli Edge—U.S. Retirement Edition, younger 401(k) participants have a greater willingness to share personal data regarding health and balance sheet information. Asset managers and recordkeepers should pay closer attention to younger 401(k) participants and engage them by offering more personalized solutions.

Compared to other generations, Generation Z is the most willing to share personal information—45% of Gen Z survey respondents say they are “very comfortable” sharing their current and/or projected spending with their 401(k) providers. The cohort is also willing to share data on their smoking status (73%), retirement savings/account balances (51%), nonretirement savings/account balances (37%), and expected retirement age (66%).

“Including more layers of personal data such as health status, life expectancy, growth objectives, and future withdrawal needs should aid in the development of a robust model that produces more desirable allocations for participants,” says Idin Eftekhari, senior analyst. “As life events transpire, updating personal data allows for timely shifts in asset allocation that can better prepare participants for retirement.”

Target-date fund managers are beginning to prioritize advancement in customization to their target-date suites. 10% of managers currently offer customization to 401(k) participants and another 40% could begin to include customization in the next year, with 30% saying it is ‘somewhat likely,’ and another 10% saying it is ‘highly likely.’

“Overall, the collection of granular personal data allows recordkeepers to learn more about plan participants and will be valuable when coordinating with asset managers about future product offerings,” says Eftekhari. “Ultimately, recordkeepers benefit from increased product offerings, which enable them to be more attractive to plan sponsors when showcasing their capabilities,” he concludes.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Retirement Edition, 1Q 2024 Issue.

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