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2024 Trends in Retirement Savings and Spending With BlackRock

It’s the question that plagues investors nearing retirement. It keeps them up at night and bubbles up in every meeting with their financial advisor.

Will I have enough?

For a long time, the answer from the financial services industry was to accumulate as much wealth as possible. But the retirement landscape is evolving. As Americans live longer on average, they need dependable income sources in retirement. However, many still lack access to tax-advantaged investment pathways.

KC Boas is the head of retirement marketing at BlackRock, which represents over a trillion in assets under management. She joined the Big Picture in Practice podcast to dissect retirement income trends and share her outlook.

You can listen to this and other episodes of the Big Picture in Practice podcast by Morningstar on all major streaming platforms. You can keep up with the latest episodes by subscribing to our Big Picture in Practice Newsletter.

Life Expectancy and the Retirement Savings Gap

The outlook on life expectancy is mixed. On one hand, the average lifespan grew by about 30 years over the 20th century. About half of people born in 2007 are predicted to live to 104 years old.

However, longevity isn’t evenly distributed. Factors such as gender, race, and income affect how long a person lives. Black Americans and low-income Americans are well below the average. In 2021, life expectancy declined to 76 years old in the United States—the lowest in nearly two decades.

This data isn’t always helpful to investors planning for retirement.

Longevity is typically reported as averages, which can mask the range of outcomes. Research indicates that people often underestimate their life expectancy. The difference between planning on living to 76 versus 104 can drastically alter retirement savings and spending.

Retirement is also dependent on national and multi-local specificities, KC explains. Countries are aging at different rates, which places different strains on their retirement systems. Investors are seeking personalized retirement advice on how much to save and a plan to get there.

Shift from Defined Benefit to Defined Contribution Retirement Plans

The retirement plan landscape is in the middle of a large-scale shift.

In past years, defined benefits plans guaranteed a source of retirement income, offering stability and reliability. Employers were responsible for funding an employee’s retirement. Today, the shrinking defined benefits system covers fewer and fewer Americans. The burden of saving for retirement has shifted off employers and onto individual investors.

The industry has debuted new retirement solutions to help investors save for the long term.

BlackRock recently celebrated the 30th anniversary of target-date funds, which the firm pioneered in 1993. Even in a period of market turbulence, target-date strategies remain the number one way people invest for retirement.

Defined contribution plans come with benefits like portability, tax advantages, and flexibility in factors like what to invest in and how much. But they don’t fulfill one ongoing need.

The Continued Need for Retirement Income

Retirement can be a daunting transition for many investors. After a lifetime of earning, saving, and planning, retirees must shift gears and spend down their wealth. Without defined benefit plans, retirees need a way to generate income.

A startling 21% of workplace savers think they will have enough money to last through retirement, BlackRock’s Read on Retirement report found. And 64% of workers say that they worry about generating retirement income.

“These statistics should raise some major alarm bells with employers,” KC explains. “Research shows that financial worries can have a big impact on employee productivity.”

She believes the winning approach will help people optimize retirement income across all available sources. That includes investment portfolios as well as annuities, corporate pensions, and Social Security.

However, as KC points out, some investors don’t have access to all sources.

Insufficient Access to Retirement Plans

When employees have access to a retirement plan through work, they are 15 to 20 times more likely to save for retirement. The advent of target-date funds, auto-enrollment, and more have made it easier for some employees to build their nest eggs.

But a surprisingly large chunk of Americans lack access to those benefits.

About half of the private sector, or 57 million Americans, lack access to workplace retirement plans. This includes small businesses, gig workers, and freelancers who are on their own to save for retirement.

Companies and technology providers are stepping up to pilot solutions. Tech firms have created solutions to make it simpler and more affordable for small businesses to open 401(k)s. States have created retirement plans that can help close the access gap.

Increasing Inclusion to Prevent the Retirement Savings Crisis

Turbulent markets, rising inflation, and uneven healthcare coverage have widened existing cracks in the retirement system.

  • On average, middle-quintile white American households have seven times the retirement savings of their black counterparts and five times the savings of Latinx ones.
  • Women’s retirement balances are often 30-40% less than men’s, research shows.
  • Even with Social Security, the elderly poverty rate of black and Latinx Americans is more than double that of white Americans.

KC will be watching two provisions of Secure Act 2.0 that took effect in January 2024.

The law would allow employers to make matching retirement contributions on employees’ student loan payments, giving investors more flexibility in their savings plans. The second provision would allow employers to set up emergency savings accounts linked to retirement accounts—once the savings bucket is filled, additional contributions would flow toward retirement.

The Future of Retirement

In response to these shifts, the industry is developing new tools and technologies to support investors. KC is excited about tools that can help investors start saving earlier or turn their investments into annuities. Through the Collaborative for Equitable Retirement Savings, Morningstar and other advocates are analyzing how investors across demographics use, experience, and benefit from their retirement plans.

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