Tackling the industry's dominant themes

by Sudipto Banerjee

Retirement income, personalization, and diversification are dominant themes for retirement-plan sponsors and their consultants and advisors. T. Rowe Price, a global investment management firm and a leader in retirement, recently shared its perspectives on how these themes will present challenges and opportunities for the US retirement industry, but we believe many of these same considerations are applicable to Canadian investors, too.

Retirement income

Retirement income challenges can’t be solved with a single investment solution. Plan sponsors, consultants, and advisors are therefore encouraged to take the broadest possible view of retirement income. This can include participant tools, a retiree-friendly plan design, and considerations for both investment and insurance solutions, as well as access to personalized advice.

The retirement industry historically has focused efforts primarily on planning and saving for retirement. At T. Rowe Price, we recognize the increasing need to help people better manage their income and spending in retirement. Fortunately, more employers are actively seeking to identify retirement solutions for their plan participants.

A change in mindset from both employers and retirees, combined with an evolution in products and services, could drive broader adoption of retirement income solutions. In fact, signs are already emerging of this trend, given an increase in the number of plan sponsors moving from information-gathering toward decision-making and implementation.

Personalization

Consumers increasingly expect personalized experiences in many aspects of their lives, and the retirement experience is no different. T. Rowe Price has collected data showing that personalization and targeted communications can help drive positive behavioral changes that improve retirement outcomes. For example, participants who watched targeted educational videos on T. Rowe Price’s recordkeeping system were twice as likely as others to increase their deferral rates and add or update their account beneficiaries.

Still, the diverse nature of participants can make personalization challenging. Traditionally, addressing personalization on an individual basis was costly and required one-on-one consultation with a financial advisor; however, advances in technology are making cost-effective delivery of both sophisticated and personalized solutions a reality.

As a result, employers and financial professionals are increasingly offering customized options that consider an individual’s circumstances beyond age – such as debt and spousal savings – a service that is anticipated to continue growing on par with demand.

Diversification

T. Rowe Price has long maintained that portfolio diversification is instrumental to achieving successful long-term retirement outcomes and making investment decisions based on the risks participants face at different stages along their retirement journey has, by and large, become conventional wisdom.

However, the 2022 correlated sell-off in both stocks and bonds reinforced the importance of a dynamic approach that can help mitigate downside risk while taking advantage of excess return opportunities. Diversification should encompass multiple market segments and also incorporate additional levers for making short-term adjustments that could further enhance returns and help mitigate near-term risks.

For over a decade, inflation wasn’t a major concern, but in today’s post-pandemic distorted market environment – where inflation risk has persisted and interest rates are expected to stay higher for longer – plan sponsors and advisors should ensure that investment allocations align with the current market outlook. This is especially true for fixed-income allocations within target-date strategies, the most popular vehicle for retirement investors. Expanded options in global fixed-income markets and non-core sectors can also create additional opportunities for diversification and potential excess returns.

Final thoughts

The retirement industry is increasingly focused on helping investors balance saving for retirement with other financial priorities. Advances in data analysis, technology, and integrated experiences can help stimulate participants’ actions and improve long-term results.

T. Rowe Price benefits from participant data collected across its US recordkeeping business. This year’s 2024 US Retirement Market Outlook included research and data from proprietary studies across T. Rowe Price, along with select industry data, as well as insights and input from retirement strategists and investment professionals across the firm. This outlook is a helpful guide to similar trends taking hold across the Canadian retirement landscape.

Sudipto Banerjee is vice president, retirement thought leadership, T.Rowe Rice