Retirement Income Solutions Take on New Importance for Today’s Workers

September 24, 2024 — Boston

As availability and use of defined benefit plans decline, Millennials and Gen X place increased reliance on employer-sponsored retirement accounts

Younger 401(k) plan participants do not expect to rely heavily on Social Security or any other guaranteed income source in retirement; instead, they plan to rely on their personal retirement accounts, according to the latest Cerulli Edge—U.S. Retirement Edition.

Active 401(k) participants understand that their retirement income strategy will look different than that of current retirees, due to the declining use and availability of corporate defined benefit plans. According to Cerulli, more than half (56%) of retired 401(k) participants say Social Security is their primary source of income, while only 7% of current retirees rely on personal retirement accounts as their primary source of income.

Meanwhile, 58% of Millennial active 401(k) participants expect personal retirement accounts to be their primary income source, while only 6% say Social Security. By contrast, 39% of Generation X active 401(k) participants say their primary source of retirement income will be personal retirement accounts, and 30% say it will be Social Security.

“Clearly, these two generations possess different views on the future of Social Security,” says Elizabeth Chiffer, research analyst. “Millennials may expect that by the time they reach retirement, they will have accumulated a robust account balance in their employer-sponsored savings account.”

Millennial 401(k) participants believe the most important retirement income product attribute is a personalized retirement income plan (27%). While 24% of near-retirement Generation X 401(k) participants are interested in having a retirement income plan tailored to their personal circumstances, 20% say they would like a guarantee that even if their assets run out, they will still receive monthly payments.

To accommodate these shifting demographic preferences, defined contribution plan design will need to change before today’s younger generations reach retirement age. Target-date fund managers are evaluating opportunities to innovate their offerings—increasingly eyeing guaranteed income solutions. According to the research, just 10% of target-date fund providers have developed a target-date fund with a guaranteed income component. Of the 90% of target-date fund managers that do not include a guaranteed income component, 33% are considering allocating to a guaranteed component, and 39% are concerned about complications related to the portability of in-plan annuities.

“The realities of outliving retirement savings for many, particularly younger workers, are real,” says Chiffer. “The industry has ample opportunity to respond with strong income solutions that cater to the needs of the future generations of retirees,” she concludes.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Retirement Edition, 3Q 2024 Issue.

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