Retirement Is Going to Change—But How?

Although plan sponsors and financial professionals foresee some differences, they all expect changes to the retirement industry by 2030.

An anticipated retirement transformation is ahead, but on the details, plan sponsors and financial professionals do not agree on the exact changes expected, new Principal Financial Group research shows.  

Both cohorts expect a shift by 2030 to more holistic wellness offerings that address workers’ total welfare—with employer benefits going well beyond retirement savings, to support employee financial wellness through a wider lens—yet Principal’s Future of Retirement survey found that plan sponsors and financial professionals see the future of benefits differently.

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“What’s happening is a significant change [in] that people are looking at total wellness: It’s not just good enough to look at financial health anymore; it really does need to incorporate mental, physical and financial health,” says Chris Littlefield, president of retirement income and solutions at Principal Financial Group.

The research shows some disagreement for the outlooks of retirement within each cohort surveyed:  

  • For guaranteed income solutions, 68% of plan sponsors anticipate this will be a plan design standard in defined contribution retirement plans, compared with 82% of financial professionals;
  • Among plan sponsors, 72% expect target-date funds with a managed account component to become the most common qualified default investment alternative option, compared with 53% of professionals; and
  • Considering financial wellness benefits, 66% of plan sponsors expect they will become a top-three employer benefit offering, behind only health insurance and retirement plans.

All Expect More Retirement Features

Survey cohorts agree on some of the retirement changes ahead, the research found.

Three-quarters (75%) of plan sponsors and 76% of financial professionals expect employers will see a shift to phased retirement processes for participants. Phased retirement could involve “continuing to work but reducing hours and pay until they take full retirement…or taking longer bouts of time away from work…then coming back to work full time until the next retirement phase,” the research report states.

Additionally, 78% of plan sponsors and 77% of financial professionals anticipate a coming shift from improving the enrollment process to improving the retirement process—which will include employers incorporating features for participants like advice and help in creating a plan for retirement—and for creating retirement income, Principal found.

Driving The Changes

Several factors are driving the expected changes, adds Littlefield.

“We’re having this first generation of people that have had nothing but a 401(k) to save for retirement [who] are now starting to retire, beginning in 2030, and people are recognizing they haven’t saved enough for retirement,” he says.  

Among people 75 years of age and older, the labor force is expected to grow 96.6% over the next decade, up from more than 50% in the last two decades, and the total labor force is expected to increase by 8.9 million, or 5.5%, from 2020 to 2030, according to 2021 data from the Bureau of Labor Statistics that was cited by Principal in its report.

“Retirement is going to look very different in the next decade, [because] people are going to be working part-time to continue [earning] an income or [continue] benefits, people are going to be looking for [work] hiatus—they want to go away for six months and then come back to work,” Littlefield says.

For cohorts working with retirement plan sponsors and their participants, those partners must explore facilitating the shift by examining retirement benefits as part of a holistic arrangement for participants, he adds.

“They can also develop more holistic programs [because] we’ve really focused [previously] on the individual benefit components,” Littlefield adds.

The Future of Retirement survey was conducted online by Principal from October 25, 2022, to November 14, 2022, and focused specifically 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.