For those just beginning a career, retirement can seem so far away that it’s not worth thinking about. However, no matter what stage your worksite employees are at, they can’t afford not to think about retirement and saving for the future — that day when you finally clock out for the last time.
What makes retirement planning now more challenging than in the past is the expectation that today’s trends may lead to dramatic changes in the landscape by the time your worksite employees actually retire, whether that’s in 10 years or 40 years. A recent survey from Principal1 polled financial professionals and employers on the most notable trends disrupting the retirement industry in the upcoming years. They agree that by 2030, the industry will undergo a significant transformation. If you’re wondering how retirement is changing in the next decade, keep an eye on these trends:
- The retirement savings gap is growing.
- The workforce is aging, and more people are delaying retirement.
- Retirement plans are considering holistic financial wellness.
- New kinds of investments will become more common in retirement plans.
- Technology is transforming retirement.
The retirement savings gap
With the rapidly rising cost of living, keeping up with retirement savings has become more difficult. A U.S. News survey2 found that 41% of Americans saving for retirement paused putting money in their retirement plans in 2022 due to inflation. The savings gap is expected to continue growing over the next decade. However, SECURE 2.0 could help with that due to the incentives it introduced. Among the updates are:
- Changes to the age when retired minimum distributions from retirement accounts must begin
- Increased catch-up contributions for 401(k)s
- Automatic enrollment changes
- In the ADP TotalSource Retirement Savings Plan, Adopting Employer’s whose original plans were formed after December 28, 2022 will be required to include automatic enrollment with an automatic deferral increase feature effective January 1, 2025. For more information, please see this callout.
- Increased small cash-out provisions.
- In the ADP TotalSource Retirement Savings Plan, the Small Balance Cash-out threshold was increased from $5,000 to $7,000 for inactive and dormant accounts in the plan effective as of June 30, 2024.
Aging workforce
The average retirement age is increasing, meaning more older Americans are sticking around in the workforce. This aging population brings significant implications to what it means to work and to retire in the U.S. Due to medical advancements and a focus on physical well-being, older adults have experienced better health and increasing longevity compared to previous generations. These improvements in health enable many older adults to extend their working lives.
As the workforce ages and retirement is delayed, concerns about Social Security continue to rise. For most Americans, Social Security is a key part of retirement planning — nearly nine out of ten people aged 65 and older were receiving a Social Security benefit as of December 31, 2023.3 But the current economic environment has many people seeing an increasingly uncertain future for their Social Security benefits. The need for a steady paycheck to support these longer, healthier life spans have made traditional retirement difficult.
Shift to financial wellness
More than 90% of the financial professionals who participated in the Principal survey1 reported that they expect offerings for financial wellness to increase by 2030. Since the COVID-19 pandemic, there has been a clear shift from simply saving for retirement to a more comprehensive plan that involves more benefits and education.
Decades ago, saving for retirement was generally seen as something everyone had to do. However, it was often kept separate from any other potential investments because the average worker couldn’t afford or didn’t know how to invest on their own.
Fortunately, today’s technology has made it easier than before for anyone to invest, even without the help of a professional. As a result, many people who in past generations might only have invested through their employer’s retirement plan are now getting more involved in the markets.
Evolving investments
Surveys suggest people are generally aware that they’re not saving enough for retirement, which is leading to evolutions in the types of benefits that could be offered in the future. For example, 82% of the professionals surveyed by Principal1 expect guaranteed lifetime income to become more common by 2030.
Professionals also expect managed account service to become more common. A managed account is a portfolio of stocks, bonds, or other securities that’s managed by a professional on behalf of an investor. Sixty percent of professionals also predict increases in environment, social, and governance (ESG) offerings.
Additionally, 75% of financial professionals and employers expect personalized investment portfolios to become a common investment offering by 2030. Finally, the Zoomer generation, which consists of those born between 1997 and 2012, is starting to enter the workforce and impact the future of retirement through the rapid adoption of various digital tools.
Technology
The current financial landscape is driven by advancements in technology. This is evidenced by improvements seen in email, chatbots, digital savings tools and calculators, and online content such as videos and webinars. As technology continues to advance, the future of retirement planning is likely to advance too – with increased personalization and automation, digital platforms that will become more sophisticated, and the role predictive analytics will play in financial planning advice.
Artificial Intelligence (AI) and blockchain technology are set to revolutionize retirement planning too. AI can analyze vast amounts of data to provide insights and recommendations, making retirement planning more efficient and effective. Blockchain technology, with its enhanced security features, promises to introduce a new level of safety and transparency in managing retirement funds and accounts.
While technology is transforming retirement planning, the role of human interaction remains vital. The future will likely see a hybrid model where digital tools complement human advice, providing a more holistic approach to retirement planning.
Bottom line
Retirement is evolving. From changes in the average retirement age to uncertainty about the future of Social Security, recent news and trends are impacting what future retirees can expect when they leave the workforce. The good news is that all these developments have the potential to help both employers and participants improve their retirement outlook.
