3 Retirement Innovations We're Excited About in 2024

If you’re like me, more and more of your time is being spent attending conferences, listening to webinars, and participating in product and strategy meetings—after which you talk and listen to a mound of ideas, concepts, and solutions centered on improving participant outcomes. Retirement income, decumulation, personalization, QDIA selection, Social Security optimization, financial wellness, small plan solutions, convergence of retirement and wealth—you pick the nouns.

The script usually goes something like this:

• There’s a national crisis from which 401(k) participants need to be rescued.

• One to three statistics to highlight how sad, confused, and doomed 401(k) participants are.

• One to three statistics from a participant survey telling us what participants need and want.

• A really great product that solves all the above, but …

• You can’t yet have it because it isn’t available on platforms your clients use.

• Oh, and a comment about how artificial intelligence (AI) might play a role in the above, without any tangible example.

I’m also a guilty party in this dance, having hosted and participated in scores of these types of sessions over the years. Still, it’s an exciting time to be in a space with promising innovation aimed at helping participants secure the retirement they want. Today, Morningstar Retirement delivers advice to more than two million retirement plan participants, and with data improvements, experience enhancements, participant access, and new capabilities and partners, I’m confident that number will be closer to 10 million in a few years.

So in the spirit of the new year and after sifting through my pile of presentations, webinars, strategy sessions, I’m going to highlight some ideas I’m really excited about for 2024.

I’m lucky (or horribly unlucky) enough to have done due diligence and product strategy focused on retirement income over the last couple of years, coming from two different angles: First as a recordkeeper, and now as a part of the Morningstar Retirement team serving recordkeepers and advisors as they make decisions on how to best support their customers. And I can confirm that both groups are in a tough spot.

Recordkeepers are faced with expensive and unique integrations product by product and specific preferences and demands from advisors and consultants, all with no guarantee of adoption or revenue. In addition, big question marks remain as to whether retirement income capabilities will be a buying decision that contributes to new plan wins. Making space on an already over-crowded roadmap—with a high degree of uncertainty, foggy revenue forecasts, and an unclear customer demand—is not an easy place to be.

On the other hand, advisors may use seven to 10 recordkeepers, each with varying degrees of developed income solutions and roadmaps along with a distinct product set and user experience. Despite doing the homework and having a point of view (POV) as a fiduciary, it’s nearly impossible to execute on that POV in a consistent, efficient way across platforms. Today, advisors might be stuck talking about topics without being able to ideally act and recommend on behalf of their clients.

With that said, I’m excited about the launch of retirement income vehicles in the collective investment trust structure. A structure we all know and love—easy to add to a recordkeeping platform, easy for an advisor to conduct due diligence on, and easy for Morningstar to make an allocation recommendation in both an opt-in and qualified default investment alternative (QDIA) setting. One example of this we have seen a lot of interest in is the Nuveen Secure Income Account that will be coming to market in 2024. We see it most commonly intended for use in managed accounts and other default solutions, leveraging the legacy of TIAA Traditional. Many advisors I’ve spoken with, who know TIAA Traditional from their non-profit businesses, are excited about the prospects of bringing the product across to their 401(k) clients and beyond.

What’s the ideal scenario for an advisor who wants plan sponsors to adopt in-plan solutions? A simple product structure offered across multiple key recordkeepers in a consistent fashion. The ability to leverage advisor managed accounts (AMAs) across those same recordkeepers and integrate—across all clients—the retirement income strategy they recommend.

Add to that their ability to provide managed spending recommendations and advice and guidance on other categories like HSA, debt, and insurance—all within the advisor managed accounts construct—and we really may have cracked the nut on this.

Even the ever-shrinking Waldorf Statler contingency that pushes back on personalization and believes that target-date funds can solve all the problems of the world agree on one thing—a retirement income strategy is best delivered in a personalized way.

We also see some level of agreement that products like a Single Premium Immediate Annuity (SPIA) or a deferred annuity, which potentially add a large amount of value to participants with accumulated assets, may not be the center of the conversation for the median 60-year-old today who has accumulated assets of $50-$75K, depending on the study you use.

So where do we focus advice for a 60-year-old with median or below assets? I’ve seen firsthand the stress of figuring out how to live with dignity in retirement off social security, part-time work, and a small amount of savings. Creating a saving and investing strategy for the remainder of your work life, social security optimization, managed spending, Medicare, and other healthcare advice—these are all big decisions, often full of compromise.

Thankfully, there seems to be growing recognition that this is a group that desperately needs and deserves some focus and energy from the industry. Multiple startups are focused on managed spending with some having a broad and full spectrum while others are narrowly focused on solutions that could be plugged into an existing advice ecosystem. I see recordkeepers contemplating what a UX should look like for someone 60+ and targeted engagement strategies. I hear advisors saying, “we serve everyone” more and more.

For our own part, we have a renewed focus on IncomeSecure, our managed spending and advice module available via Retirement Manager and Advisor Managed Accounts. To be fair, our customers have been laser-focused on the accumulation phase, and as such, the bulk of our roadmap and innovation has been applied there. As a result, there’s innovation and experience enhancements to IncomeSecure that can help our customers continue delivering high-quality advice to all plan participants.

I’m a true believer in the power of human-centered, or human-assisted, advice and planning. I’ve seen it change lives throughout my career, get people on track, lower stress and anxiety, and reassure in times of volatility, both in the market and personally. It works. That interaction is not replaceable in my opinion, with improvements happening in engagement and experience, virtual interactions, call assist, and many of the ideas that are bubbling around in AI conversations. These can all help improve and expand on our ability to serve up human interactions with more scale and efficiency.

In an ocean of AI articles, panels, and webinars, I’m committed to finding conversations and strategies focused on doubling down on the human side of advice. A great example of this was a collaborative conversation amongst many of our clients that took place in November at our annual Recordkeeper Forum. Multiple recordkeepers shared examples of technology and experience enhancements that are making virtual coaching sessions more effective, personal, and scalable.

One example that stood out was Schwab sharing success stories from their Financial Coach team, with samples of how the team starts with retirement plan advice, and how that often leads to helping with other financial goals such as college savings, buying a home, paying down debt, and more financial wellness centric topics. As you’d expect, when things get complex, when a higher degree of help is needed, Schwab has additional teams and resources to help those participants. The ability to serve every plan participant was a clear goal of many of the recordkeepers participating, with several outlining plans to keep investing in their coaching and planning teams to do so.

Another exciting example came more recently during a conversation with one of our key recordkeeping partners. In 2023, they piloted an advanced level of service via an advice consulting team. The results were amazing, with counseling sessions leading to over 30% advice adoption AND savings rate increases of 5%!

On the registered investment adviser (RIA) side of the house, there’s more good news—and maybe the most exciting in my opinion. As retirement advisors continue to improve their ability to bring best practices and solutions from their firms’ wealth management and planning practices, more human-centric resources will become available. In addition, the non-investment benefits of leveraging our advisor managed accounts platforms are starting to take shape. A handful of RIAs will be piloting some impressive product enhancements in early 2024, including expanded connectivity and relationship building with the participant, an array of advice and guidance beyond the retirement plan with our “next best dollar” methodology, and scalable one-to-many education and engagement campaigns—for all of an advisor’s AMA plans across recordkeeping platforms. Add to this the ability to use AMA in individual retirement accounts (IRAs) and we are well on our way to achieve our broader goal of bringing high-quality advice and planning to the masses.

In 2016 (prior to my Morningstar stint), I still considered myself an investment nerd. At the time, I was somewhat obsessed and a little angry with the lack of diversified fixed income options in the core menu. That problem is still a problem, but I’ve matured so I’m no longer as angry about it. That, the lack of alts, real estate, and other stuff I like—combined with the rise of default investing—aided me in convincing an even bigger investment nerd or two to co-write a paper about the need for a broader array of core menu options.

To say that no one liked the idea is a mild understatement. We all moved on as quickly as possible, but the idea that a 401(k) participant should have access to more asset classes continued to linger. Now, after 7 years away from Morningstar, I’m back and still thinking about it!

Maybe on accident, advisor managed accounts are poised to bring more asset classes, including private equity and other alts, to the DC marketplace. At many of the AMA RIAs, the chief investment officer (CIO) and investment team at the “home office” are responsible for building the core investment portfolios that drive the AMA investment process. These same investment professionals are building portfolios for their endowment, foundation, and defined benefit clients, and are wondering the same thing I have been for years, “where are all the asset classes?”

There are two approaches being discussed, both leveraging the growing list of recordkeepers that allow non-core funds as part of their advisor managed accounts integrations. One is to simply add a non-core fund and allocate to it as part of the core model creation process. The second, and where we see the most interest today, is the RIA investment team building a set of diversified funds of collective investment trusts (CITs). Beyond the ability to add asset classes that aren’t quite ready for the core menu, it comes with some advantages including potential lower cost, efficiency across recordkeeping platforms, and a potential liquidity buffer for less liquid asset classes, to name a few.

While this might be a slow burn, I do think progress will be made in 2024. Who knows, maybe I’ll call my old colleagues and we’ll write a 10-year anniversary edition of our much-maligned paper.

I hope the New Year treats you well, your January is off to a great start, and our list of things to be excited about overlaps.