A seismic shift is occurring in the constantly shifting retirement planning space. Plan sponsors and advisers now find themselves navigating dramatically varying expectations about retirement income sources across generations. Cerulli Associates’ latest U.S. Retirement Edition study has shed light on this trend, revealing a stark contrast in how different age groups view their financial future, particularly regarding Social Security and personal retirement accounts.
The survey, cited in a recent Employee Benefit News article, examined the viewpoints of three distinct groups of workers, each with their own unique perspective on retirement: Baby Boomers, Generation X, and Millennials. Baby Boomers, particularly retired 401(k) participants, rely heavily on Social Security – 56% count on it as their primary source of income. For their part, 39% of Generation Xers expect personal retirement accounts to be their main income source, while 30% still plan to count on Social Security as their primary safety net. When it comes to the Millennials, 58% anticipate personal retirement accounts will be their primary post-career income, with a mere 6% expecting to rely on Social Security.
What does this mean for retirement plan sponsors and advisers? It’s clear that a one-size-fits-all approach to retirement planning is no longer viable. Crafting strategies that speak to each generation’s unique concerns and expectations is a must.
For Baby Boomers, the focus should be on maximizing Social Security benefits while gently encouraging diversification. They’ve grown up with the promise of Social Security, and while you shouldn’t discount its importance, you can guide them towards supplementing this income with personal savings and investments.
When it comes to Gen X, it’s important to help them navigate the middle ground between traditional retirement models and more modern approaches. This might involve creating flexible plans that allow for a mix of income sources in retirement, acknowledging their dual expectations of relying on Social Security and personal retirement savings accounts.
For the Millennial workforce, the challenge lies in harnessing their self-reliant mindset while ensuring they’re not overlooking potential benefits. While you focus on helping them build robust personal retirement accounts, you should also educate them about Social Security as a potential supplement to their retirement income, even if they view it as a bonus rather than a source they can rely on.
Across all generations, the key is education and communication. Comprehensive financial literacy and wellness programs that cover both Social Security and personal retirement accounts can help. By providing tools and resources to help employees project their retirement income from various sources, you empower them to make informed decisions about their financial future.
Moreover, encouraging early savings habits is key across the board. Implementing auto-enrollment and auto-escalation features in 401(k) plans can help younger employees to jumpstart on their retirement savings. For older employees, shift the focus to catch-up contributions and strategies to maximize savings during their remaining working years.
Retirement plan advisors can add value and help improve outcomes by staying informed about potential changes to Social Security and communicating updates to employees of all ages. Conduct regular plan reviews to ensure that the offerings continue to meet the evolving needs of a multi-generational workforce.
Flexibility is key. Plan sponsors must be prepared to adjust their offerings based on shifting employee expectations and market conditions. By emphasizing the importance of having multiple income streams in retirement and offering strategies to achieve this goal, it’s possible to help all employees approach retirement with confidence and security.
