Securing Retirement: 2025 Trends in DC Retirement Income Solutions

This story has been updated.

As we approach 2025, defined contribution savings plans are evolving, influenced by demographic shifts, technological advancements and regulatory changes. With Social Security’s future uncertain, longer life expectancies and fewer employers offering traditional defined benefit plans, retirement income generation from DC plans is becoming a primary area of focus for policymakers, employers and participants alike. Here’s what we can expect as major trends for DC plans in 2025, particularly how they will shape retirement income strategies for millions of Americans. 

1. Rise of In-Plan Retirement Income Products

Expanding in-plan retirement income products will be one of the most significant trends. These products offer retirees a steady income stream to reduce the risk of outliving their savings. The momentum will continue with product creation, recordkeeper integration and plan sponsor adoption. These products, including in-plan annuities, hybrid target-date funds, hybrid managed accounts and systematic withdrawal strategies, are gaining popularity among plan sponsors and participants.

The Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022 have accelerated the adoption of these options by clarifying the regulatory landscape and reducing fiduciary risk, thus empowering plan sponsors to adopt in-plan retirement income options. The legislation’s lifetime income disclosure requirement for DC plans, which converts current account balances to projected monthly retirement income based on guaranteed income products, has further boosted participant awareness and interest in these products.

Investment management firms and insurers are rapidly developing solutions, including hybrid target-date funds and hybrid managed accounts with built-in income features. These hybrid products combine the simplicity of TDFs with annuity-like features to offer growth and income in one offering. Hybrid TDFs, for example, gradually transition investors from growth to income, embedding annuity and retirement paycheck features that ensure steady periodic payouts, making them attractive to participants seeking simplicity and security. Additionally, managed accounts with hybrid features provide personalized portfolios that adjust over time, integrating income streams alongside market-based investments.

Industry-leading recordkeepers have accelerated the integration of these products on their platforms. This trend aligns with plan sponsors’ feelings of responsibility for providing sustainable, lifetime income options.

2. Evolution of Digital Tools and AI for Retirement Income Planning

Digital technology and artificial intelligence will transform retirement income planning by making it more personalized, immediately accessible and efficient. In 2025, participants can expect to see advanced AI-powered and other digital tools integrated into DC platforms, offering real-time, personalized projections and strategies for achieving desired income levels in retirement.

These tools will provide tailored income recommendations based on age, savings rate, retirement savings, longevity projections, other assets and risk tolerance. They will also adjust dynamically to market conditions and changing participant circumstances. For example, AI-driven platforms may simulate different market scenarios and suggest personalized withdrawal strategies or asset allocations to ensure income sustainability. The platforms will also provide customized strategies for integrated retirement income. The tools will educate participants about the decision criteria for when to elect Social Security. By automating complex calculations and offering “nudges” for optimal savings and drawdown, these digital tools will empower participants to make informed decisions that align with their retirement goals.

Integrating AI into participant-facing education tools will help participants better understand retirement income options. AI-powered virtual assistants can answer common questions about retirement income, guide participants through hypothetical retirement scenarios and provide personalized alerts if contributions or investment allocations need adjustments. The wider availability of AI participant education tools will expand the plan sponsor’s responsibility to evaluate, select, and monitor these tools.

3. More Robust Pre-Retiree Education Programs in Financial Wellness Initiatives

In response to the growing importance of retirement income, workplace financial wellness programs need to improve the content of pre-retiree education. Employers will incorporate targeted programs for employees in their 50s and 60s, equipping them with the knowledge and tools to maximize their income from savings. These pre-retiree education initiatives will address the nuances of transitioning from saving to spending and guide employees on how to manage income sources in retirement, including Social Security timing, required minimum distributions and tax-efficient drawdown strategies.

Pre-retiree education will also include training on retirement health expenses, covering options like Medicare, long-term care and supplemental insurance. Employers recognize that many employees approach retirement with a limited understanding of these critical issues, and robust pre-retiree education can significantly impact retirement security and reduce stress. The pre-retiree wellness program will include digital interactive tools, group workshops and one-on-one counseling, allowing participants to choose how to engage.

Conclusion

The continued evolution and increased success of defined contribution retirement plans in the U.S. are centered on balancing a focus between accumulation and providing sustainable retirement income. In 2025, participants will be able to experience more seamless, personalized and secure options for converting their retirement savings into lifelong income streams. The role of employers, retirement services providers and retirement income product distributors will also increase, with significant growth in adopting in-plan retirement income options. Continued government regulatory and legislative action to support using in-plan retirement income options is expected as well.

Kevin Crain is the executive director of the Institutional Retirement Income Council. IRIC is a retirement industry association partnering with recordkeepers, plan sponsors, product distributors, consultants and advisors to promote the utilization of in-plan retirement income options.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.