Differing generational retirement expectations spur personalized strategies

Differing generational expectations about how and when to retire are placing an increased focus on personalized investment strategies, according to research from Principal Financial Group.

According to Chris Littlefield, president of Retirement and Income Solutions at Principal, the most recent Principal Financial Well-Being Index survey focused on the future landscape of retirement and how retirement continues to evolve as more Americans turn 65 in 2024 than in any year before.
“Our research found generational differences in attitudes and expectations for retirement,” Littlefield said. “The majority of Generation X and millennials are planning on a “phased” retirement before the age of 65, while baby boomers and Generation Z prefer an immediate retirement where they stop working entirely.”

In addition, each generation expresses a preference to retire at an earlier age than the prior generation, with baby boomers stating their preferred retirement age as 68, Gen X as 64, millennials as 59, and Gen Z as 55.

“It’s becoming increasingly important that savers have access to education, advice and more personalized investment and retirement income solutions that help support a retirement that aligns with their individual desires and needs,” Littlefield said.

Phased retirement appealing to more workers

In explaining why a phased retirement is appealing to so many workers, Littlefield said that retirement means different things to different individuals, and their expectations or desires in retirement are varied. Having a sense of purpose and fulfillment, staying mentally and socially stimulated, maintaining healthcare benefits, optimizing for Social Security, and generating additional income for living expenses, travel, or other discretionary expenses, are among the reasons that cause people to pursue a phased approach to retirement.

As the attitudes and expectations for retirement continue to evolve, two critical needs are emerging, according to Littlefield:

Helping workers address holistic retirement and financial needs, including gaps in retirement advice, personalization, risk management, and retirement income to help them meet their unique goals.
Extending retirement readiness conversations beyond financial planning to better support the overall well-being of employees and to account for the mental and emotional elements of this major life event.

Additional survey findings

This survey also helps keep a regular pulse on current business sentiment, added Littlefield.

“We continue to see steady and positive sentiment and growth from businesses despite economic volatility. Businesses remained on solid footing heading into 2024 with 65% reporting the financial health of their business is “growing,” which is a post-pandemic high. Small and midsized businesses (SMBs) continue to close the gap with large businesses,” he said.

One year ago, Littlefield said, large businesses outpaced SMBs in growth by 20 percentage points (73% compared to 53%). That gap has narrowed to 11 percentage points (71% compared to 60%). As the new year begins, businesses are focused on growing revenue (28%), improving cash flow (8%), and hiring more staff (7%), he said.

Implications for financial professionals

So, what are some of the implications of these findings for financial professionals who are working in the retirement-planning space? Whether working with employers or individuals directly, financial professionals can help keep a few things in perspective, Littlefield said. First, there are several complex and personal issues that need to be considered in providing retirement advice: healthcare costs, dependent care obligations, Social Security decisions, and converting retirement savings into lifetime income, to name a few.

Second, Littlefield said, retirement savers need more help in understanding their risk tolerance, gaining clarity on their ability to withstand a financial shock, and developing “all weather” financial plans to ensure they have the right set of investments, insurance, and other solutions in place to retire confidently on their terms.

Littlefield added that going forward, increased personalization, as well as tailored savings and investment strategies that take into account an individual’s financial goals, lifestyle, healthcare needs, dependent-care obligations, retirement-income expectations, and other unique factors, can help achieve improved financial security in retirement, no matter if that person wants a traditional or a phased retirement.

The survey was commissioned by Principal and conducted online by Dynata from Nov. 6-13, 2023, with 500 business owners, decision- makers, and business leader participants and 200 employee participants. This wave included a survey of 127 individuals who consider themselves retired or have previously fully retired and have gone back to work.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

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