Survey identifies leading disruptors of the retirement industry

A survey from Principal Financial Group has identified the leading disruptors to the retirement industry that employers and financial professionals believe will reshape plans, services, and solutions by 2030.

An aging workforce, Generation Z, the growing demand for personalized investment advice, and financial wellness were four areas cited as some of the top disruptors of the retirement industry in a recent survey.

Each area is viewed as a priority in the next 5-7 years to help address the widening retirement gap that is approaching $4 trillion in the U.S. The four areas were top of mind for more than 250 plan sponsors and 200 financial professionals who responded to the Principal Future of Retirement Survey.

Competing generational needs

Employers are often choosing retirement plans to help meet the needs of five generations of Americans. More of Gen Z will enter the labor market in the next 5-7 years while the number of people aged 75 and older in the workforce is expected to grow 96.6 percent by 20302.

To support an aging workforce, three out of four plan sponsors and financial professionals agree that participants should have the ability to make recurring withdrawals from their employer-sponsored retirement savings as they take a phased approach to retirement.

“Choosing to retire is no longer a single-step life decision,” said Chris Littlefield, president of retirement and income solutions at Principal. “Many individuals approaching 60-65 years of age need or prefer a phased retirement, working part-time to get relief from the 40-hour work week without fear of outliving their nest eggs.”

What will drive change in retirement markets?

On the opposite end of the workforce spectrum, 76% of plan sponsors agreed that the expectations of millennial and Gen Z investors will be the driving change in retirement markets by 2030. In particular, the preference Gen Z has to conduct most financial business online is viewed by both financial professionals (55%) and plan sponsors (47%) as the top disruptor from this generation.

Need for more personalization

According to the survey, one growing expectation to better serve participants is an ability to provide individualized advice. More than 70% of plan sponsors and financial professionals agreed that personalized investment portfolios and managed account services will be common offerings within defined-contribution plans by 2030.

To offer more holistic and personal guidance, 78% of plan sponsors and 77% of financial professionals also agreed that there will be a shift from improving the enrollment process for employees to improving the retirement process, which can include services like advice, retirement planning, and creating retirement income.

Financial-wellness programs to emerge

Financial-wellness programs are also expected to emerge as an additional plan resource to further personalize the participant experience by 2030, with 85% of plan sponsors and 90% of financial professionals agreeing that plan sponsors will increase the adoption of these programs, the survey said.

Apart from retirement-savings programs, plan sponsors believe that the top five financial-wellness benefits that should be offered include:

• Helping participants establish a budget and financial plan
• Retirement-income planning
• Credit-card and debt counseling
• Health-care planning for early retirees
• Investment education

Preparing for retirement industry disruption

So what should advisors be doing right now to prepare for these disruptors to the retirement landscape? According to the Principal research, employees view financial professionals and retirement plan providers as the two most trusted sources of financial information, said Littlefield. “So,” Littlefield said, “it’s important for financial professionals to partner with plan providers and employers to build trust with individuals by providing them with personalized advice that helps them save for retirement.”

Many Americans face a number of financial barriers to saving, such as consumer debt, student loans, and health- care costs, Littlefield added. “This increases the need for more personalized, holistic financial advice, which, in turn, could lead to better outcomes.”

The Future of Retirement Survey was conducted online by Principal from October 25, 2022, to November 14, 2022. It was focused on the views plans sponsors and financial professionals have on the future of the retirement industry. Respondents included 255 plan sponsors and 201 financial professionals.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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