Retirement trends are evolving rapidly, leaving many millennials to face a vastly different landscape than previous generations. Defined-benefit pensions have become very rare, and home ownership remains out of reach for most millennials. As we look at the retirement picture for this generation, it’s clear that traditional models are giving way to more innovative approaches.
According to industry experts, 2024 was a pivotal year when in-plan retirement income offerings continued to evolve regarding product creation and implementation. During 2025, we expect to see plan sponsors increasingly focus on evaluating and selecting retirement income solutions within defined contribution plans, effectively broadening their responsibility from accumulation to ensuring participants achieve long-term retirement security. Additionally, there’s growing recognition that participants need more help with retirement preparation, particularly understanding election decisions and processes for Social Security and Medicare.
The future of retirement is undoubtedly being reshaped by technology as well. Many financial institutions are increasingly making investments in artificial intelligence, blockchain technology, new retirement income solutions, and even retirement planning experiences in the metaverse. In this article, we’ll explore how these emerging trends are changing the retirement game, especially for millennials who are either just establishing themselves in the workplace or firmly putting down roots for family and career.
How millennials are reshaping retirement expectations
Millennials are dramatically redefining what retirement means, moving away from the conventional path their parents and grandparents followed. Born between 1981 and 1996, this generation has witnessed economic upheavals that have fundamentally altered their approach to financial planning and retirement goals.
From pensions to personal savings
The retirement landscape has fundamentally shifted from employer-managed pensions to self-directed savings plans. In 2020, while 85 million private-sector workers actively participated in 401(k)-type plans, only 12 million had pensions. This transition has placed the burden of retirement planning squarely on individuals’ shoulders. Unlike previous generations who could rely on guaranteed income streams, millennials must navigate investment decisions independently, often without adequate financial education.
Nevertheless, there’s promising news. Millennials have recognized this responsibility and started saving earlier than their predecessors. At ages 35-40, millennials are ahead of where Gen Xers were in terms of retirement savings at the same age. Furthermore, they’re embracing financial advice at younger ages compared to Gen X.
Why traditional retirement models no longer fit
The conventional retirement age of 65 no longer aligns with millennial aspirations. Most millennials (61%) plan to retire before age 65, with nearly a quarter (22%) aiming to retire before 60. Their vision of retirement differs substantially from previous generations:
39% plan to pursue a new career in retirement
35% intend to start a business
42% seek a more active retirement lifestyle
39% desire more adventure in retirementThis generation prioritizes experiences over traditional wealth markers, often delaying homeownership and marriage while focusing on personal development and travel.
The impact of longer lifespans and delayed milestones
Millennials face the unique challenge of planning for potentially longer retirements. Among millennial workers, 26% expect to live 30 or more years in retirement, with 39% anticipating living to age 90 or older. Surprisingly, despite expecting longer lives, they don’t plan to work much longer—expected retirement age increases by only one month for every one-year increase in expected lifespan.
This extended retirement horizon, coupled with delayed traditional milestones like homeownership and family formation, creates financial planning challenges. Moreover, student debt continues to be a significant hurdle, with millennials three times more likely to be paying off student loans in their late 30s than boomers were at the same age.
Consequently, many millennials are rethinking what retirement means altogether, focusing on creating a more affordable (31%), minimalistic, and even nomadic retirement that allows for passion projects (37%) rather than traditional leisure-focused retirements.
The rise of innovative retirement solutions
As retirement needs evolve, financial institutions are creating innovative solutions to address the unique challenges faced by today’s workers. These forward-thinking approaches are reshaping how people save for and transition into retirement.
Hybrid target-date funds and managed accounts
The defined contribution industry has largely solved the accumulation phase through target-date funds (TDFs), but now seeks better decumulation solutions. Hybrid annuity TDFs have emerged as a promising answer, combining traditional TDF investment growth with guaranteed lifetime income through annuities. These innovative products typically feature three components: a multiasset allocation supporting growth, an income-funding strategy, and an annuity providing guaranteed income.
Meanwhile, managed accounts continue gaining traction, with assets rising from $108 billion in 2012 to $348 billion in 2019. Their main attraction is personalization—portfolios are customized based on factors like age, salary, risk tolerance, and out-of-plan assets. Notably, 87% of DC recordkeepers now offer managed accounts as in-plan retirement income solutions.
Systematic withdrawal programs and annuity marketplaces
Systematic withdrawal plans (SWPs) provide pre-planned cash flows from investments during retirement. These structured approaches allow retirees to withdraw a set percentage or amount regularly, typically following the “4% rule” which suggests withdrawing 4% of savings in the first retirement year. SWPs help prevent impulsive spending while providing predictable income.
Simultaneously, annuity products are experiencing unprecedented growth, with Americans purchasing nearly $115 billion in retail annuities recently. In-plan annuities are typically more cost-effective than retail versions, with CREF’s expense ratios ranging from 0.03% to 0.49%, compared to the 2.36% average for retail variable annuities.
Integrated planning with Social Security
Modern retirement solutions increasingly incorporate Social Security optimization. This integration is critical since many lower-income workers—disproportionately women and people from marginalized groups—may experience reduced retirement income through traditional integration methods. Advanced planning tools now help participants determine optimal Social Security claiming strategies while considering their overall retirement picture.
Indeed, these innovations reflect the industry’s shift toward providing holistic retirement solutions that address both accumulation and decumulation phases effectively.
Personalization and tech-driven planning tools
Technology has radically advanced retirement planning tools, making them more personalized and accessible than ever before. The tools available today offer sophisticated features that help millennials navigate their unique retirement challenges with greater confidence.
AI-powered retirement income projections
Artificial intelligence is changing the retirement planning landscape by providing unprecedented analytical capabilities. Since 2007, financial institutions have been researching and integrating AI, machine learning, and natural language processing into investment processes. AI can now analyze complex data sets to extract differentiated insights about market dynamics, potentially leading to more tailored portfolios.
For everyday users, AI-powered tools can calculate required minimum distributions, run Monte Carlo simulations, and optimize retirement income drawdown strategies while considering tax implications. These systems can contextualize complex questions like “I need money urgently” within plan rules to generate clear one-click actions.
Interactive planning experiences for participants
Today’s retirement planning tools offer immersive, interactive experiences. Apps like Betterment create personalized retirement plans after analyzing your financial information, allowing you to track spending and net worth as circumstances change. Similarly, Empower’s free retirement planner lets users envision different scenarios and understand how factors like tax rates and inflation might influence their financial plans.
Other tools like WealthTrace automatically update balances daily after linking accounts, giving users current insights into their retirement trajectory. Most importantly, these tools allow users to test different scenarios to see how results change, providing clarity about future possibilities.
Customizing plans based on demographics and goals
Modern planning tools can tailor strategies to individual circumstances. Platforms like KidbrookeONE enable pension providers to offer highly personalized planning experiences based on workforce demographics, salary, and long-term financial goals. These tools incorporate market trends, inflation rates, and salary progression to deliver data-driven insights.
The most sophisticated systems integrate all aspects of financial life—from investments and insurance to estate planning—into a cohesive retirement strategy. As Roger Park, EY Americas Innovation Officer, notes, “the opportunity to create real consumer value comes in aggregating multiple retirement solutions into a cohesive experience”.
Financial wellness and early education for future retirees
Preparing for retirement requires early education and financial wellness planning, especially for those approaching their golden years. With many Americans unprepared for retirement due to inadequate savings and the absence of guaranteed pensions, comprehensive education has become essential in securing financial futures.
Pre-retiree modules for ages 50+
For those in their 50s, retirement planning takes on new urgency. One crucial advantage is catch-up contributions—after 50, individuals can contribute an additional $7,500 to 401(k)s and $1,000 to IRAs annually. Regarding investment strategy, experts recommend becoming more conservative as retirement approaches, with a general guideline of subtracting your age from 100 to determine your stock allocation percentage.
Beyond savings, considering long-term care options becomes vital in your mid-to-late fifties. Nearly 70% of adults over 65 may require skilled care, with the annual national median cost for a private nursing facility room reaching $116,800 in 2023. Health Savings Accounts (HSAs) offer another valuable tool, allowing catch-up contributions of $1,000 annually after age 55.
Social Security and Medicare education
Understanding Social Security and Medicare fundamentals significantly impacts retirement security. Barring major reforms, projections indicate Social Security’s trust fund will be unable to pay full benefits after 2033. Medicare’s Hospital Insurance trust fund faces similar challenges after 2036.
Medicare enrollment begins automatically at 65 for those earning Social Security. However, Medicare Part A premiums (hospital coverage) differ from Part B (doctor coverage), which costs between $164.90-$560.50 monthly. Additionally, Medicare doesn’t cover dental care, vision, hearing aids, or long-term care.
Budgeting and tax planning for post-retirement life
Creating a realistic retirement budget remains one of the most crucial yet overlooked aspects of preparation. Fidelity research suggests having $250,000 toward retirement can be an important milestone that changes outlook when facing retirement challenges.
Essentially, retirement budgeting should separate essential expenses (housing, healthcare, food) from discretionary spending. To avoid outliving your savings, experts generally recommend withdrawing no more than 4-5% from investment portfolios in the first retirement year, adjusting for inflation subsequently. Furthermore, healthcare costs demand special attention—the average 65-year-old may need $165,000 in after-tax savings to cover healthcare expenses in retirement.
Conclusion
Looking to the future of retirement planning
Retirement planning has undoubtedly transformed for millennials compared to previous generations. Throughout this article, we’ve seen how traditional retirement models have given way to more innovative, personalized approaches that better suit changing lifestyles and expectations.
Millennials, accordingly, have adapted to these shifts by starting their retirement savings earlier than previous generations despite facing unique challenges like student debt and delayed homeownership. Their vision of retirement differs significantly from traditional models, with many planning to retire earlier while pursuing new careers, businesses, and adventures during their golden years.
Financial institutions, meanwhile, have responded with innovative solutions like hybrid target-date funds, managed accounts, and systematic withdrawal programs. These products aim to address both the accumulation and decumulation phases of retirement planning, offering more flexibility and personalization than ever before.
Technology, particularly AI and interactive planning tools, has certainly revolutionized how people prepare for retirement. These advancements provide unprecedented capabilities for personalized projections, scenario testing, and holistic financial planning that considers all aspects of one’s financial life.
Last but not least, financial education remains crucial for successful retirement planning. Understanding Social Security benefits, Medicare options, budgeting strategies, and tax planning can make a substantial difference in retirement outcomes, especially for those approaching their 50s and beyond.
The retirement landscape will continue evolving as millennials age and new generations enter the workforce. Those who stay informed, embrace technological tools, and adapt their strategies accordingly will find themselves better positioned for financial security in retirement. Regardless of your age or financial situation, the time to start planning for retirement is now—your future self will thank you.
