Retirement providers in the United States are facing unprecedented change as people increasingly view retirement as a dynamic life stage rather than a fixed milestone. Amid evolving lifestyles and shifting personal aspirations, what does this redefined view on retirement mean for the industry?
To start, bear in mind that positive client experience matters in retirement and drives meaningful outcomes. 56% higher savings rates are observed for engaged participants (those who interact with their provider at least once per year). 40% of customers are more likely to roll money over from other retirement accounts if they have a great digital experience. Client experience has become the new battleground, where effective engagement is crucial for improving participant outcomes and driving value for both clients and firms.
Where there is a captive audience, such as in the defined contributions space, firms face an “engagement paradox”: participants have little to no choice over their provider, leaving organizations to fight for their attention. But in return, those captive audiences present a unique opportunity for firms to build trust by removing friction in the client experience and demonstrating the value of engagement beyond the core scope of their services.
By minimizing the impact of behavioral biases and creating relevant touchpoints, retirement providers can offer more personalized and impactful support throughout the entire client journey. Why is this needed? Let’s explore this question by first looking at the state of the industry.
3 factors transforming the retirement industry
Retirement providers are under pressure to transform their businesses. They are managing an evolving landscape spanning from adapting to fee pressures to changing consumer expectations. Three factors stand out, each playing a pivotal role in redefining how firms need to operate in the future.
- Disruptive industry forces
The industry is facing intense competition due to ongoing fee pressures. Accenture’s report on Reinventing Retirement Recordkeeping demonstrates that roughly a third of the top 25 recordkeepers in the US operating at subscale today will be forced to radically transform their business or risk to be pushed out of the market. This just underscores the importance of client experience as a key differentiator in the market going forward.
Also, as people’s expectations change (1/5 retirement digital experiences don’t meet expectations) and technology boosts opportunities for personalization, there is a stronger need for education, advice, and holistic product solutions that meet participants’ multifaceted needs at speed and scale.
- A decade of deconstruction
The traditional lifepath to retirement is being rewired as people live longer (the number of centenarians in the U.S. is projected to quadruple over the next 30 years) and place less value on traditional life milestones.
Or consider the rise of semi-retirement: 46% of individuals aged 60 to 75 plan to work at least part-time after retirement, often in “second careers” driven by passion, the need to stay active, or financial necessity due to fears of outliving their savings.
On the other end, there are groups who face significant structural barriers to retirement, notably racial minorities or women. Women have on average 65% lower retirement account balances compared to men. Additionally, declining financial literacy for today’s teens (41% don’t know what a 401(k) is), along with inflation and economic challenges, may contribute to an environment where comfortable retirement is an unrealistic goal for many.
- Regulatory changes and renewed focus on retirement
New regulations have been introduced with the aim of tackling some of the systemic challenges faced in the US when it comes to retirement. Secure 2.0, for example, is designed to make it more attractive for employers to offer retirement plans and improve retirement outcomes for employees. However, alone, these regulatory efforts are likely not enough to enable Americans to effectively engage and retire with confidence. More recently, the media have also been paying more attention to retirement-related topics, bringing them to the forefront of participants’ minds.
Engagement starts with building trust
Retirement providers could play a pivotal role in fostering more trust in the retirement system by creating meaningful touchpoints throughout the entire client journey. To do so, they will need to demonstrate the tangible benefits of active participation, helping clients on their individual journeys—and putting the human at the center.
A critical element for creating such meaningful touchpoints is to address consumer biases which are often deeply ingrained in people’s daily thinking (and acting). Here is a look at some of the most prevalent biases and some ideas on how firms are already helping to overcome them:
- We live in the here and now
For many people, immediate gratification is often more appealing than future benefits, which may lead to a lack of preparation for retirement. Firms could in return look to implement strategies that amplify the impact of action, like Duolingo’s use of daily streaks and rewards, to foster consistent engagement and long-term goal achievement.Penny rich, pound foolish
People often scrutinize small expenses while neglecting larger, more significant ones. Use clear visualizations of future needs and next best dollar or behavioral economics strategies, like the Save More Tomorrow program, to enhance understanding and reduce loss aversion.Fear of finding out
When problems seem overwhelming, it’s common to avoid dealing with them. Break down daunting challenges into manageable steps, as e.g., Noom does with health and weight loss, leveraging behavioral psychology to encourage sustainable lifestyle changes.People don’t like mental exercise
Financial jargon and complex concepts can alienate people who consider themselves as “non-experts”. Simplify information using relatable language and analogies, such as Wealthfront’s explanation of tax loss harvesting using rhubarb pie.Relationships are not built on transactions
Today, when it comes to retirement, many people think in terms of problems and needs, not necessarily in products. To address this, firms need to offer holistic solutions tailored to individual needs and relationships rather than isolated transactions.
The key is for firms to build “adaptable” engagement capabilities as there is no one-size-fits-all solution in retirement planning—simply because the retirement industry currently needs to serve four distinct generations: Baby Boomers, Generation X, Millennials, and Generation Z, each at different life stages and with unique digital and financial planning needs.
Retirement providers could build lasting engagement and trust by understanding and addressing the specific consumer segments’ needs—and to some extent each individual customer. Today’s technology capabilities, such as Gen AI, can help with this.
Overall, this would not only help individuals achieve their retirement goals but could also strengthen the health of the retirement ecosystem. Even simple actions by industry players, e.g., around financial inclusion, could go a long way for the broader communities they serve.
If you are interested in learning more, let’s start a conversation—we’re here to help.
Thank you to Alex Convey and Sam Murphy-Kerry for contributing to this blog.
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