Times are changing for retirement plans: Employees need a wealth plan too

A new retirement market outlook report from T. Rowe Price, 2024 U.S. Retirement Market Outlook suggests that retirement income, personalization and diversification will be the major themes shaping the landscape in the new year.

Michael Davis, head of the defined contribution plan specialist team at T. Rowe Price, provided an overview of the report at the outset of a virtual event discussing the investment management firm’s findings.

“Retirement income has accelerated as a focus area,” Davis said. “The industry has been focused historically on helping people save for retirement, but now as more people are reaching retirement age, there’s a shift to help them think about how best to spend and preserve those assets. Fueled by this continued shift is having a personalized way of reaching retirement savers and meeting them where they are to encourage good retirement outcomes. And while inflation levels have retreated, fluctuations in equity and fixed income markets have magnified the importance of having a more diversified and resilient retirement portfolio, especially within fixed income allocations.”

A panel of experts discussed the major retirement themes in depth at the virtual event.

No. 1 theme: Retirement income

William Meyer, founder and CEO of Retiree Inc., a subsidiary of T. Rowe Price, said the financial services industry is not yet prepared for an increasing emphasis on retirement income but it will need to catch up fast. He said the industry has succeeded at innovating ways to help people save for retirement but has not done the same for income.

“When you pivot to spending and you think about all the discussions that 10,000 people are retiring every day, there’s 100 million families 50-and-over, are we really prepared? Do we have the right products? Do we have the right processes?”

Meyer pointed to some key themes for retirement income in 2024. Among them was that he expects to see “an explosion of new products.”

“A lot of the product innovation to date has been around insurance back products – how to get guaranteed income into a plan, how to get consistent payments out to our clients,” Meyer said. “And we think there’s going to be a new set of products that are not insurance-backed, that have a little more flexibility, more liquidity, and different ways to get different payment streams out of products. But, again, a lot of different constructs. Some that will be inside a plan, some that will be sponsored by financial planners and advisors.”

No. 2 theme: Personalization

Although personalization is not a new theme to 2024, Rachel Weker, senior retirement strategist at T. Rowe Price, said that makes it no less important this year. Consumer expectations are a key driver.

“As individuals, we’ve been taught to expect solutions and experiences that are really tailored to our needs,” Weker said. “And we tend to ignore those that feel less relevant to us. That’s driven in large part by technology, which enables those more personalized experiences, and the pace of change of technology is showing no signs of slowing down anytime soon.”

Another driver is a growing recognition of the disparate needs of individuals and that “a one-size-fits-all solution just isn’t relevant, especially when you recognize the importance to many employers of hiring, attracting and retaining a diverse workforce that is going to have some disparate needs,” she said.

Personalization helps ensure that employers are addressing a broad range of needs and  delivering more personalized experiences that captures people’s attention, Weker said.

No. 3 theme: Diversification

Diversification is a long-discussed topic that will be more in the spotlight this year, according to the T. Rowe Price report.

In particular, Jessica Sclafani, senior defined contribution strategist for T. Rowe Price, said, “Don’t be basic in a volatile market. With persistent inflation concerns and rates on the rise, investors need active management and thoughtful diversification to realize their retirement savings goals.”

Related: Reshaping retirement planning: 4 pivotal elements in the 2024 financial landscape

“For the past decade, inflation hasn’t really been a concern. But … that’s no longer the case. Inflation peaked at around 9% mid-year and has since abated, however, concerns around inflation and its potential to erode retirees’ purchasing power has not. In fact, our research shows that 85% of older retirement savers are worried about the impact of inflation on their retirement. From a diversification perspective, asset classes and strategies with inflation protection characteristics must be considered.”

Convergence of wealth and retirement

Linking the themes, Michael Doshier, senior retirement strategist for T. Rowe Price, explained that a major shift in the financial services industry is underway.

“Convergence is nothing more than having two business strategies that have been vastly separate for most of the history of the financial services industry – retirement and wealth – and watching them on a collision course coming together,” he said.

Doshier said this convergence is a good thing, noting that workers’ retirement and wealth needs fall under the same umbrella for them, but have been placed in “separate domains around the financial services landscape much to the confusion and dismay of the average investor or the retirement plan administrator.”

“That’s beginning to change. What we’re seeing now is an acceleration of businesses looking across [these domains] and wondering how they can do more to help investors.”