Gen Z Employees Show Affinity for Increased Personalization in TDFs

Young 401(k) participants were the most likely to share personal information to help tailor their retirement investments to their needs and goals, according to new Cerulli data.

Updated with correction.

As young 401(k) investors show the most willingness of all generations to share personal data, compared new
Cerulli research suggests that Generation Z employees are in the driver’s seat when it comes to demand for more tailored retirement investments. 

Nearly half of Gen Z survey respondents in “The Cerulli Edge—U.S. Retirement Edition” said they are “very comfortable” sharing their current and/or projected spending plans with their 401(k) providers. 

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The Cerulli report argued that greater personalization allows 401(k) participants’ retirement assets to “become more dynamic over time” and helps meet the unique long-term investing goals of individual investors.  

Creating an inefficient portfolio at a young age can lead to delaying full retirement by a few years, adjusting withdrawal amounts once retired or making drastic changes to asset allocations after the fact, Cerulli argued. 

Sharing information like health and family history data with recordkeepers can “better calibrate the ratio of stocks to bonds to cash/cash equivalents and other asset classes” in a retirement account, according to the report, and can ultimately help participants better plan for when they want to retire.  

More so than other generations, Gen Z participants were willing to share information like smoking status, expected retirement age, current and/or projected spending and nonretirement savings and account balances.  

Information like a participant’s health status can prompt a change in asset allocations. For example, if a participant’s health status changes from “good” to “poor,” it may warrant a shift to a more conservative asset allocation—especially if that change in health results in early retirement or an earlier need for investment income. 

Meanwhile, many target-date-fund managers are starting to prioritize customization in their TDF offerings, as 10% of managers currently offer customization to 401(k) participants, and another 40% plan to include customization in the next year.  

Cerulli also found that 45% of TDF managers surveyed already allow participants to transition from a TDF to a managed account at a specific threshold, such as age or account balance. A recent NEPC survey found that while 43% of plans offer managed accounts and fees have come down by about 20% to 40% over the second half of 2023, only 5% of participants use the accounts.  

A plurality of fund managers that Cerulli surveyed (47%) said a leading benefit of personalized TDFs is the ability to help participants achieve more appropriate risk profiles, and 42% said participants like the idea of having a solution customized to their circumstances.  

As TDFs remain the preferred qualified default investment alternatives for most plan sponsors, with assets reaching $3 trillion in 2023, the Cerulli report argued that asset managers and recordkeepers should capitalize on this upward trajectory by incorporating more personalization.  

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