Retirement pros must prioritize automatic income in retirement: Nationwide

Employees remain optimistic about their retirement savings, despite today’s economic challenges, according to the 4th annual Protected Retirement survey from the Nationwide Retirement Institute.

The survey found that this improvement is largely due to the active engagement of employees in managing their retirement accounts: Most workers (76%) check their balances at least once a month and 3 in 10 modify their contributions or rebalance their investments monthly.

More than six in 10 (65%) of workers say they are on the right track when it comes to financial preparedness for retirement; this figure rises to 71% for 22-34-year-olds, a 15-point increase from 2023.

Workers are also embracing new solutions to create steady income in retirement. Nearly two in five (37%) of employees 45 or older are now aware of guaranteed income options within 401(k) plans, a significant 20-point increase since 2023.

Plan participants rate in-plan lifetime income investment options as the top solutions that would increase confidence in their retirement plans and financial investments.

To enhance and maximize their savings, employees are also asking for automatic features, such as auto-enrollment and auto-escalation that simplifies retirement planning, reflecting a shift in how people think about retirement savings – from a mere nest egg to a crucial element of financial security in retirement. Also, 73% want their workplace retirement plan to include an automatic way to convert their assets to a stream of income in retirement, a number that rises to 77% for employees aged 45 and older.

“Retirement plan participants are viewing 401(k) plans as so much more than just a savings vehicle by thinking about them as a comprehensive tool to help prepare for and live in retirement.”” said Cathy Marasco, vice president of Protected Retirement solutions at Nationwide. “In this new era, it’s crucial that we meet employees where they are with the right education and solutions to help them achieve financial security in retirement.”

Despite increased optimism, however, 56% of employees continue to worry about outliving their retirement income and many (61%) find it challenging to determine how long their savings need to last. Because of this, nearly one in three employees 45 or older (28%) now expect to delay retirement due to insufficient savings.

Call for action

Employers have a critical role to play in offering employees not only resources and information about retirement planning but more importantly, simple, automated guaranteed income solutions. Failing to meet these needs can lead to more delayed retirements, negatively affecting the organization’s financial performance and the onboarding of new talent.

For example, 47% of private sector employers say that delayed retirement makes their health and benefits plans more expensive, 35% say delayed retirement impacts their ability to promote younger talent, and 26% have noticed lower productivity levels.

Employees age 45+ say there are four best practices workers should take before the age of 35 to be best prepared for retirement, however, none of the actions were accomplished before that age by a majority of this cohort:

• Starting to contribute to an employer-sponsored retirement account (47% did this by age 35)
• Building up an emergency fund (32% by age 35)
• Using company match (32% by age 35)
• Paying off debts (27% by age 35)

In response to delayed retirement, plan sponsors were more likely to offer new products/solutions:

• 52% provide more resources, information to participants
• 43% enhance retirement benefits
• 42% increase company match
• 37% offer new products and solutions

Financial advisors also play a crucial role in educating employers about guaranteed income solutions and making sure that plan participants have access to these useful retirement tools. Most employers are interested in including guaranteed income options in target date funds (85% of private and 91% of public employers) or managed accounts (81% of private and 87% of public employers), representing a significant opportunity for financial professionals to help plan sponsors fill this gap for their employees.

Securing the future of retirement

As retirement planning continues to evolve, it’s evident that the future of long-term financial security involves guaranteed income solutions and automatic features within retirement plans.

Related: Retirement reset: Pre-retirees need help reevaluating lifetime income offerings

“While education is helpful, survey respondents told us they want solutions that make it easy. We’ve found that automatically enrolling participants and automatically increasing contributions lead to significantly better outcomes for participants,” added Cathy Marasco. “The next opportunity is to enable automatic income in retirement with protected retirement solutions—and that’s not just a nice-to-have. It’s a necessity to help ensure that participants can retire with confidence and security. Employers and financial professionals must prioritize these solutions.”