Younger generations driving demand for personalized 401(k) plans

With a tendency to post everything from pictures to their personal information, there’s a reason why Gen Z has been called “the sharing generation.” For asset managers and record keepers in the 401(k) market, that could be a trend worth following.

In its newest research on the retirement investing, Cerulli Associates found Generation Z's openness to share personal data could be the catalyst for more tailored retirement solutions.

As differentiation increasingly becomes the name of the game across the wealth industry, Cerulli suggested that record keepers and asset managers should look to provide personalization in their target-date funds, particularly among younger generations.

Looking across different generations of 401(k) participants, it found younger age groups were more inclined to disclose personal information across areas ranging from health details to financial balances, which could be vital in crafting more personalized retirement planning strategies.

According to Cerulli’s survey research, Gen Z participants are especially willing to share their information, with 45 percent saying they’re “very comfortable” sharing their spending habits with their 401(k) providers, compared to just 32 percent of millennials and 36 percent of Gen Xers.

More than half of Gen Zers also said they were willing to disclose their retirement account balances (51 percent) and their retirement age (66 percent).

On the health front, the survey showed nearly three-quarters of Gen Zers (73 percent) are comfortable revealing their smoking status, versus two-thirds of Gen Y (67 percent) and Gen X (68 percent).

"Including more layers of personal data such as health status, life expectancy, growth objectives, and future withdrawal needs should aid in the development of a robust model that produces more desirable allocations for participants," said Idin Eftekhari, a senior analyst at Cerulli. “As life events transpire, updating personal data allows for timely shifts in asset allocation that can better prepare participants for retirement.”

The push toward customization is already underway. According to the study, 10 percent of target-date fund managers currently offer some form of customization to 401(k) participants, with an additional 40 percent – including 30 percent who say it’s "somewhat likely" and 10 percent saying it’s "highly likely" – considering it within the next year.

"The collection of granular personal data allows record keepers to learn more about plan participants and will be valuable when coordinating with asset managers about future product offerings," Eftekhari said.