Retirement Disruptors: 4 Key Trends That Will Change the Industry Landscape by 2030

A new report from Principal explores the major disruptors that appear to have the retirement industry “on the cusp of a major transformation that hasn’t been seen since the introduction of the 401(k) in 1978.”

The Principal Future of Retirement survey examines how both financial professionals and sponsors of employer retirement plans believe the retirement industry will develop by 2030. Disruptions shaping that forecast include:

• the aging workforce,
• an embrace of holistic financial wellness,
• the evolution of investments and advice, and
• the emergence of Gen Z.

Respondents to the survey said they believe the shortfall between how much money people need to make to retire comfortably and how much they have saved will remain a problem by 2030, pointing to challenges such as access, participation and workers “putting away too little too late.”

“To close the retirement savings gap, we must focus on more assertively adopting proven default solutions as well as driving behavioral and educational change that not only brings more people into the financial system but also gives them the tools and motivation to effectively save for retirement,” said Chris Littlefield, president of retirement and income solutions, Principal Financial Group. “With increased financial barriers facing individuals saving for retirement, the need for holistic advice and support solutions has become paramount.”

The Principal report said that “in-plan retirement investment options will likely continue to develop as we move away from a defined benefit retirement system. It’s becoming increasingly important to help pre-retirees understand how to turn the savings from their 401(k)s and Individual Retirement Accounts (IRAs) into income in retirement.”

In the current climate, Principal points to a shifting focus from enrollment to the holistic retirement process and expanding access to retirement benefits for nontraditional employees. The global pandemic “flipped a switch” for workers, according to the Principal report, causing them to put more of a focus on their total well-being, including the mental, physical and financial components. For providers, that means supporting “the needs of the whole employee” rather than through “a piecemeal collage of benefits.”

Principal’s survey found that 95% of financial professionals and 92% of plan sponsors expect to see an increase in financial wellness offerings by 2030, and 85% of plan sponsors believe those programs will experience increased engagement.

Littlefield said plan sponsors and others have adjustments to make in the coming years.

“Data around retirement readiness makes it clear there is more work for all of us to do in the industry, and plan sponsors want recordkeepers and advisors to work collaboratively to put the interests of the participant at the heart of our work,” Littlefield said. “With their providers, employers can assess and develop targeted plan provisions and programs that address wellness and advice gaps to meet the needs of their multigenerational and diverse workforce.”

The aging workforce has clear implications for retirement planning and benefits, Littlefield said. Principal cited U.S. Bureau of Labor Statistics’ estimates that the number of workers 75 and older is projected to grow by 96.6% by 2030, leading to a transformation in employer retirement plans.

“Whether they’re lacking the confidence to retire or have a preference to work part-time, the number of workers aged 75 and older is expected to increase by 2030,” Littlefield said. “This makes plan design critical in the future, and adding retirement income or extending benefits to part-time employees might be the biggest focal points.”

Littlefield said Principal’s research demonstrates “a recognized need to create more in-plan options.”

“Our Future of Retirement survey found 75% of plan sponsors agreed participants should have the ability to make recurring withdrawals from their employer-sponsored retirement savings as they take a phased approach to retirement,” Littlefield said. “Similarly, 78% of plan sponsors also agreed it’s time to shift the focus from enrollment to improving the retirement process, which would include advice and creating retirement income.”

According to the report, most small businesses (74%) and large employers (84%) believe the expectations of millennial and Gen Z investors will provide the driving change in retirement markets by 2030. Understanding those investors and their needs will be critical to serving them. Gen Z, for example, “is the most tech-savvy generation yet, and their willingness to source information independently on a mobile device is a paradigm shift for the industry,” Littlefield said.

“Both millennials and Gen Z are stressed by high student loan debt, life decisions like buying a home or starting a family, as well as coping with economic volatility that may lead to the first recession of their working careers,” Littlefield said. “But, if we look at these conditions as opportunities to connect with younger generations earlier in their lives, we can help put them on a more confident path to achieving financial security.”