More members of America’s aging workforce expect to stay in their 401(k) plans after they retire. And those folks are going to need a steady stream of income to pay their bills once they punch out for the last time.
Put it all together and that means in-plan retirement income solutions are going to be a hot topic for plan sponsors for a long time to come.
Effectively managing in-plan retirement income helps retirees reduce the very real threat of outliving their savings. To deal with this risk, which is only going to grow as Americans live longer thanks to modern medicine, plan sponsors will need to adjust their current slate of investment offerings, according to Jessica Sclafani, global retirement strategist at T. Rowe Price.
“Our research showed that the majority of plan sponsors are beginning to see more retired participants stay in the plan,” Sclafani told InvestmentNews. “This is where the rubber meets the road. And it suggests that with more retired participants in the plan, that the plan might want to add services solutions that can meet those retirees needs.”
Sclafani said T. Rowe Price conducted a series of studies in 2024 to understand which types of investment solutions plan sponsors saw as appealing specifically when it comes to retirement income. The first thing they learned from their study was that there is no obvious or consensus solution right now.
They also saw that some plan sponsors expressed a preference for adding a retirement income solution that is connected to their target date solution. Or, as Sclafani put it, they looked to “harness the power” of that particular default investment.
Finally, they observed a preference among plan sponsors to offer a solution that was multi-asset based and includes retirement income as a component.
“They were not looking to add the separate discrete retirement income solution but looking to offer participants a holistic multi-asset solution,” Sclafani said.
Personalization is an increasing theme in American lives, and it extends to their financial dealings as well. That’s why T. Rowe Price supplemented its target date offering last year with the launch of Personalized Retirement Manager (PRM), a service that uses personal data to create an asset allocation tailored to an individual's specific savings goals, preferences, and financial situation.
One other big topic for 2025, Sclafani added, is adding private assets to defined contribution plans.
Emergency savings
In addition to income solutions, emergency savings will also be in focus for retirement planners in 2025. And that’s despite the run-up in stocks over the past two years.
According to Rachel Weker, senior retirement strategist at T. Rowe Price, hardship withdrawals were twice the level in 2024 that she had seen the previous year. She added that “vast majority” of the monies taken from those retirement plans remain unpaid with near historic inflation playing a primary role in preventing participants from adequately maintaining viable emergency savings accounts.
“While we have done a lot to help people focus on saving for retirement, we have to acknowledge the fact that they need to be prepared for emergencies. They need help. Paying down debt and student debt for many people remains a significant debt load for them,” said Weker, adding that the Secure 2.0 Act has been helpful in offering ways for employees to leverage their retirement plans while pressing them to save more.
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