Nearly one-third of employees want their income protected against market losses starting at age 50, and almost all of them want market protection before the age of 65.
Those are key findings from American Century Investments’ 10th annual survey of 1,509 retirement plan participants, released today. This year, as in some previous years, more than 500 plan sponsors were also surveyed.
“As participant demand increases for a protected retirement, two-thirds of employers would rather incorporate guaranteed income into an existing investment option on the 401(k) menu such as a TDF or managed account, and one third would add it as a completely new option.”
American Century’s Rick Luchinsky
The new research also found that over three-quarters say it’s at least very important to maintain full control of and flexibility with their retirement account after they retire and begin taking income.
“As participant demand increases for a protected retirement, two-thirds of employers would rather incorporate guaranteed income into an existing investment option on the 401(k) menu such as a target date fund (TDF) or managed account, and one third would add it as a completely new option,” said Rick Luchinsky, American Century’s co-head of Intermediary Distribution.
On the employer side, 94% said they feel responsible for helping employees save for and spend down their retirement, and 80% want employees to keep their assets in their plan. Nearly all agree that it’s important to provide features that allow employees to turn their balance into a reliable income stream when it’s time to retire.
“While employers are torn, almost half would prefer to have guaranteed income as the default,” said Glenn Dial, senior retirement strategist for American Century, the $209 billion global asset manager.
In this year’s survey, inflation and interest rates were a top concern for 64% of workers, and market volatility was a top concern for 53%. Consequently, 73% of workers said they want an investment that protects against losses and a majority would prefer to have their account balance’s ability to generate guaranteed income automatically protected.
Optimism remains high, retirement trends hold
Since the first American Century retirement study in 2013, at least 60% of respondents have reported they believe their standard of living in retirement will be about the same or better than it is currently. In the latest survey, 73% of respondents are optimistic about their retirement. Optimism has only been higher in 2017, 2018 and 2021.
Dial said he believes this optimism may be related to confidence in the features and products that have been developed to address workers’ needs. Interest in automatic enrollment in an employer-sponsored plan grew from 65% in 2013 to 71% in 2022 (and increased from a default enrollment of a 6% contribution to 10%).
Participant interest in target-date funds (TDFs) has grown even more significantly, rising from 55% in 2013 to 72% in 2021. Plan sponsors are very confident in TDFs: more than 9 in 10 believe target-date funds address longevity risk as well as inflation and interest rate concerns, and two-thirds say they would prefer a TDF which helps participants protect savings from significant losses.
“As it pertains to income, this may be why there is a clear preference for participants to have all of their account balance protected in the form of a default, then choose how much guaranteed income to take at retirement,” Dial said.
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