Retirement is evolving. From changes in the average retirement age to uncertainty about the future of Social Security, recent news and trends are impacting what future retirees can expect when they leave the workforce.
A recent survey from Principal polled financial professionals and employers on the most notable trends disrupting the retirement industry in the next few years. They agree that by 2030, the industry will undergo a significant transformation.
If you’re wondering what how retirement is changing in the next decade, keep an eye on these trends:
— The retirement savings gap is growing.
— The workforce is aging and more people are delaying retirement.
— Retirement plans are considering holistic financial wellness.
— New kinds of investments will become more common in retirement plans.
— Retirement plans are more customizable than before.
The Retirement Savings Gap
With the rapidly rising cost of living, keeping up with retirement savings has become more difficult. A recent U.S. News survey found that 41% of Americans saving for retirement paused putting money in their retirement funds in 2022 due to inflation.
“The difference between what retirement savers need and what they have is playing a critical role in reshaping retirement. Most experts agree the retirement savings gap is growing, largely due to inflation, with millennials and centennials (Gen Z) impacted the most,” Laura Sterling, vice president of marketing at Georgia’s Own Credit Union, says.
Experts surveyed by Principal agree, adding that this gap will continue to grow by 2030.
New legislation might help to combat this, however. The SECURE 2.0 Act was signed into law in December 2022 and introduces a slate of incentives for retirement savings.
[READ: Can You Retire on $1 Million? Here’s How Far It Will Go.]
Aging Workforce
The average retirement age is increasing, meaning more older Americans are sticking around in the workforce.
“This can be due to various factors, such as financial need, a desire to keep working or the need to maintain health insurance coverage. Delaying retirement can have financial benefits, as it allows individuals to continue earning income and building their retirement savings,” Jon Morgan, chief executive officer of consulting firm Venture Smarter, says.
But as more people push back retirement, plans will need to change in the next decade.
“Aging baby boomers are changing the way retirement is viewed and planned for … As a result of this shift towards longer working lives, employers are increasingly offering more comprehensive financial wellness benefits and educational programs to help employees make informed decisions,” Linda Chavez, founder and CEO of Seniors Life Insurance Finder, says.
Shift Toward Holistic Wellness in Retirement Plans
According to Principal, the COVID-19 pandemic served as a catalyst to make changes to retirement plans — with a greater focus on holistic financial wellness. More than 90% of financial professionals surveyed by Principal agreed that financial wellness offerings will increase by 2030.
“Post-COVID, there has been a shift in the retirement plan landscape, with more emphasis on comprehensive financial wellness benefits and education. This is particularly important for younger generations who may not have a good understanding of personal finance and retirement planning,” Morgan says.
This might include emergency savings programs, credit counseling and more.
[READ: Big Changes Are Coming for 401(k)s]
Evolving Retirement Investments and Advice
“Another trend is the growing popularity of different kinds of investments, such as exchange-traded funds and index funds, as opposed to traditional defined benefit plans,” Morgan says. “This shift is driven by a desire for more control over investments and the ability to personalize portfolios to meet individual goals and risk tolerance.”
Principal experts agree that different types of investments will likely become even more popular in the next several years. For instance, 82% of the financial professionals it surveyed agree that guaranteed lifetime income will grow in popularity by 2030.
More Personalization in Your Retirement Plan
In tandem with the shift in types of investments for retirement plans comes a push toward more customizable options for employees.
“As this shift away from traditional pensions continues, employers can provide their employees with more personalization options so they can tailor their investments to meet their individual needs,” Chavez says. “This will ensure that everyone has access to the resources they need to plan for an optimal retirement.”
Morgan adds that technology advancements will make this kind of personalization accessible for younger generations.
“Robo advisors and other digital investment tools can offer tailored investment strategies based on individual preferences and risk profiles, which can help younger generations make more informed investment decisions,” he says.
According to Principal, 90% of survey respondents believe personalization advice will come from a financial professional, while 81% of employers agree digital advice tools will play a major role by 2030.
[READ: 10 of the Best-Performing 401(k) Funds.]
Other Retirement Trends to Watch
One other important thing to note about the retirement industry over the next decade is that a new generation of employees is entering the workforce. As the last of the millennial generation and the first of the Gen Z workers join the fray, retirement plans will have to adjust to account for their needs.
Principal survey respondents believe Gen Z will thoroughly disrupt the market due to trends including a preference for online learning and fintech tools, a shift toward nontraditional workplaces and benefits and a focus on personalization.
Sterling adds that inflation is severely impacting the ability of Gen Z to save.
“Inflation coupled with student loan debt and high housing and auto prices make it nearly impossible for many to save money. In recent decades, the cost of inflation has far surpassed the pace of pay increases, so this trend is unfortunately not going away any time soon,” she says.
No doubt, this will shape retirement plans as younger workers become a larger percentage of the workforce.
More from U.S. News
The Future of Social Security: Will Social Security’s COLA Boost Mean Benefits Run Out Sooner?
What Raising the Retirement Age to 70 Would Mean for Social Security
6 Costs That Are Making Retirement More Expensive
Watch for These Trends Shaping the Future of Retirement originally appeared on usnews.com
