Marketing
The future of retirement services: Trends and predictions
According to the Bureau of Labour Statistics, the age of the American workforce is changing. By 2030, there will be 96.6% more people above age 75 in the labour workforce. There is also a growing gap in retirement savings, with 31% of workers having no access to a defined contribution plan at work.
People are living longer, which comes with the risk of outliving their savings and the need for better retirement planning. Employers must reshape the company retirement policies to address the new trends and retirement needs while using the latest updates in the 401(k) plan.
This article discusses the key retirement trends and how they are changing employer-provided plans.
Critical trends in retirement services
The retirement landscape is undergoing a rapid change globally and in the US. The following trends will impact the way employees plan and save for the future –
Ageing population
Several countries, including the US, are experiencing declining birth rates and longer life expectancies, leading to an increasingly ageing population. In the US, the current birth rate is 1.6 per births per woman between ages 15 and 44. The average retirement age is 65, with an average annual income of $50,290. Also, 12% of men and 15% of women depend on the Social Security Administration for 90% of their income. A greater number of retirees puts significant financial pressure on the retirement system, government, and employers.
Widening retirement services gap
According to a survey, 20% of Americans have no savings for retirement. 33% of respondents say they do not have enough savings for retirement, and 31% do not know if they do. 26% of retirees have more than $100,000 in savings, and only 9% have more than $500,000. This shows a significant savings gap, which is further stressed due to inflation and the cost of housing and healthcare.
Comprehensive wealth advice
Given the financial challenges, the ageing population needs better financial advice and retirement planning from their employers. Employees need a comprehensive approach to wealth building and future planning while they are at work. This includes finances, taxes, and estate planning for post-retirement financial security.
Investment diversification
According to the statistics given above, US citizens are already struggling to secure their financial future. Due to this, they are looking for low-cost exchange-traded funds or index funds to optimise their retirement savings. Others choose guaranteed lifetime income plans with a higher fee. Employees must start early and plan long-term for retirement.
Demand for technology – Auto-enrolment and self-service
While retirement planning has been a manual process, the younger generation is pushing for automation and technological capabilities. Employees expect their employers and financial advisors to understand their needs and provide personalised services. Employers can play a pivotal role by supporting their employees through robust retirement planning and benefits, such as auto enrolling the employees in the 401(k) benefits plan.
Promoting the Health Savings Accounts (HSAs) benefits
With increasing healthcare costs, employees will face higher premiums and treatment costs as they age, which raises the need for a robust retirement plan that accounts for healthcare expenses. According to Federal Reserve findings, 29% of employees are retiring due to health reasons and HSAs are growing in popularity. Those who want to pay from their pocket can build savings on a tax-deferred basis.
Financial education for participants
Due to a lack of financial education, a sizeable population in the US is not building a corpus to maintain a living standard post-retirement. The Federal Reserve found that one in four individuals do not have sufficient retirement planning and savings, and the median retirement assets are less than $100k. Employers can consider packaging financial education with retirement plans for their employees.
Auto-portability of 401(k) plans
The auto-portability plan of 401(k) automatically transfers the balance of retirement savings when employees switch jobs. This addresses any fund leakage through a seamless plan-to-plan retirement savings transfer. Without auto-portability, a person may withdraw loans, make hardship withdrawals, or not roll the 401(k) to an IRA retirement savings plan.
How are the trends transforming employer retirement plans?
Given the statistics we discussed above, employers are shifting their focus from enrolment in a retirement plan based on the cost to a holistic retirement process. They are expanding the retirement benefits for non-traditional employees and using phased retirement for pre-retirees.
Retirement planning is shifting from purely financial to holistic, which includes the following aspects –
- Retirement income planning (including estate, will, income, and health expenses)
- Setting up a budget, financial plans, and insurance needs.
- Emergency savings.
- Credit card counselling.
- Healthcare planning for early retirees.
- Investment education.
How can Infosys BPM help?
Infosys BPM offers comprehensive support for retirement services, including marketing, plan design, documentation, enrolment, and administration for 409A retirement plans and nonqualified executive deferred compensation programs. By leveraging Infosys McCamish's web-based platforms and expert back-office services, financial institutions can significantly enhance their asset-gathering opportunities and streamline plan management. Whether integrated with a 401(k) plan or managed as a standalone service, Infosys BPM ensures maximum flexibility and compliance with IRC Section 409A, providing end-to-end solutions that meet the needs of plan sponsors and participants alike.
Read more about the BPA retirement solutions at Infosys BPM.
