Amid Volatility and Inflation, Workers Desire a Protected Retirement

A majority of employees would prefer to have their account balance protected and automatically generate guaranteed income during retirement, according to 10th annual American Century^® Retirement Study

New research building on a decade of data shows that while optimism about retirement remains high, 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. Additionally, 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. This research comes from $209 billion* global asset manager American Century Investments' 10^th annual survey of 1,509 retirement plan participants. This year, as in some previous years, more than 500 plan sponsors were also surveyed.

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 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.

"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 Investments' co-head of Intermediary Distribution.

Optimism Remains High and 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.

Glenn Dial, senior retirement strategist for American Century Investments, 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.

Employers Want to Help

On the employer side, 94% 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 Dial.

Survey Methodology

The plan participant survey was conducted between Dec. 7, 2022, and Jan. 4, 2023. Survey included 1,509 full-time workers between the ages of 25 and 65 saving through their employer's retirement plan. The data were weighted to reflect key demographics (gender, income, and education) among all American private sector participants between 25 and 65. Percentages in the tables and charts may not total 100 due to rounding and/or missing categories. Greenwald Research of Washington, D.C., completed data collection and analysis.

The plan sponsor survey was conducted between Aug. 22 and Sept. 12, 2022. Survey included 508 plan sponsor representatives holding a job title of director or higher, and having considerable influence when it comes to making decisions about their company's retirement plan (either 401(k), 403(b), or 457 plans). The data were weighted to reflect the makeup of the total defined contribution population by plan asset size.