A significant generational shift in retirement planning is reshaping how employers need to think about their benefits packages. While older generations have traditionally viewed Social Security as their primary source of retirement income, younger workers are increasingly putting their faith—and their money—into personal retirement accounts.

The Trust Gap Widens

New research from Cerulli Associates reveals a stark contrast in how different generations view their retirement future. The firm’s latest U.S. Retirement Edition study, which surveyed approximately 1,500 401(k) investors in the first quarter of 2024, found that 58% of millennials with active 401(k) participation expect personal retirement accounts to be their primary source of post-career income. Only 6% of millennials say they’re counting on Social Security as their main income source in retirement.

This stands in marked contrast to current retirees, where the numbers are nearly reversed. More than half (56%) of retired 401(k) participants report Social Security as their primary source of income, while just 7% rely mainly on personal retirement accounts..

The Generation X Transition

Generation X represents a transition point in this shifting mindset. According to the study, 39% of active Gen X 401(k) participants anticipate personal retirement accounts will be their primary retirement income source, while 30% still plan to rely on Social Security. This middle-ground position reflects their unique perspective as a generation caught between traditional retirement models and newer financial realities.

Why the Shift Matters for Employers

This generational divide in retirement planning creates both challenges and opportunities for employers. As younger workers take a more active role in their retirement planning, they’re likely to scrutinize employer-sponsored retirement benefits more carefully than previous generations.

The trend suggests that robust 401(k) programs and other personal retirement account options may become increasingly crucial factors in attracting and retaining younger talent. With millennials clearly betting on personal retirement accounts over Social Security, employers’ retirement benefits packages could become an even more critical differentiator in the competitive labor market.

Building a Future-Ready Retirement Program

The data points to several key considerations for employers looking to align their retirement benefits with evolving workforce expectations:

Enhanced 401(k) Options

With younger workers placing greater emphasis on personal retirement accounts, employers should evaluate whether their current 401(k) programs meet the needs of a workforce that will rely more heavily on these benefits. This includes reviewing investment options, contribution matches, and program education resources.

Multi-Generational Planning Support

The research shows that retirement planning preferences vary significantly by age group. Employers need to consider how their retirement benefits can effectively serve a multi-generational workforce, from baby boomers who rely heavily on Social Security to millennials who are increasingly banking on personal retirement accounts.

Financial Education Resources

As younger workers take more personal responsibility for their retirement planning, employers have an opportunity to provide enhanced financial education and planning resources. This support can help employees make informed decisions about their retirement savings strategies.

Adapting to the New Retirement Reality

The generational shift in retirement planning expectations signals a broader transformation in how workers approach their financial futures. For employers, this means retirement benefits can no longer be a one-size-fits-all proposition. Instead, companies need to develop more nuanced approaches that acknowledge and address varying generational perspectives on retirement security.

As millennials continue to make up an increasing share of the workforce, their strong preference for personal retirement accounts over Social Security suggests that employer- sponsored retirement benefits will play more prominent role in talent acquisition and retention strategies.

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Copyright © 2024 Smarts Publishing. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.