Rethinking Default Solutions

Near-retirees and retirees between the ages of 65 and 69 feel 8% and 15% less secure, respectively, about their retirement now than they did in 2023, according to Allspring Global Investments’ 2025 retirement study, “By Default or By Design?” published Monday.

For the past twenty years, the defined contribution sector has been following a very “similar course toward simplification, lower costs and defaults,” says Nate Miles, head of retirement at Allspring. “While the average makes a lot of sense when people are early in their career and younger, it makes less sense as people mature inside the DC market.”

Tending to Diverse Needs

“Our differences make the difference,” Allspring’s report stated. While target-date funds determine an age-appropriate level of risk, they do not consider unique life circumstances or participants’ diverse levels of savings.

“Adding back a little more choice and options for those participants nearing retirement is probably the answer [to going beyond the default],” says Miles. “Simplicity has done wonders, but it might be an idea that we’ve taken a little too far.”

Allspring’s study recommended offering a core investment menu that accommodates a broad spectrum of needs—with TDFs at one end, and equity income and tactical bond options at the other.

Miles adds that an executive order signed by President Donald Trump on August 7, which encourages inclusion of private equity, cryptocurrency and other alternative investments in 401(k) plans, could be a “seminal moment of change”—not just because alternatives are likely to be added to DC investment menus, but because it may create an opportunity to talk about solutions other than simplifying the menu.

The executive order offers a way to say, “We believe diversification is important, and we believe there is room to add more options, but maybe there is a way to do it with tons of transparency and daily liquidity,” explains Miles. There may also be a way to do it with “pricing that’s more reflective of today’s DC environment versus … the private asset space.”

Social Security Remains Top Income Source

Social Security represented nearly 40% of income for retirees in the study. However, most near-retirees reported being unaware that, when possible, delaying the age at which they start to claim Social Security benefits from to age 70 from 62 increases monthly benefits by nearly 80%.

“The good news is that education works,” the report stated.

Only an average of one in 10 near-retirees correctly answered the questions Allspring asked about Social Security. But those who did were twice as likely to delay their withdrawals until age 70.

Advisers and AI

While this year’s survey showed that advised retirees and near-retirees tended to be wealthier, healthier and more educated, the study suggested there is still work left to be done.

“To help close the gap, advisers and plan sponsors can target education and resources toward workers without an adviser to help them understand their needs, minimize taxes, optimize Social Security and improve retirement outcomes overall,” the report stated.

Allspring suggested artificial intelligence could be a useful tool to tailor asset allocation and withdrawal plans cost effectively. However, the firm cautioned industry leaders to use discretion. Of those who are advised, 43% reported that they distrust AI, and the share of skepticism jumped to 53% for those who are not advised.

AI can “improve how advisers and sponsors reach investors and participants—so long as [it] is designed to augment their role and not become the default,” the report stated.

On behalf of Allspring, Escalent fielded a survey from April 25 through May 16 among 726 near-retirees (average age 61) and 789 retirees (average age 71) who were primary or joint household financial decisionmakers and U.S. residents with at least $200,000 in household investible assets.