RetireTech: The Next Wave in Retirement
Today’s U.S. retirement industry is big business. Retirement plan asset worth has increased to $34.9 trillion as of year-end 2021,1 and this sea of wealth is translating into vast opportunities for the U.S. retirement industry, whose successive waves have included more holistic financial planning, financial wellness programs, and most recently, RetireTech. A thriving ecosystem of startups, product innovations, and digital-first platforms that provide advice and risk management, RetireTech comes at a particularly opportune moment. Younger cohorts of retirement savers are avid users of technology in addition to growing segments of 401k, annuity, and public pension programs, while baby boomers are collectively approaching retirement age. With new and innovative savings solutions that account for the rise of the gig economy, whose non-traditional workers require specialized solutions, the RetireTech wave continues to build.
RetireTech’s Serious Side
Despite its novelty, RetireTech touches on weighty issues such as lifespan, lifestyle, and legacy. Since retirement today may look much different from person to person, varied and tailored options are increasingly desired. These solutions must also be dynamic, iterative, and customizable over a consumer’s lifetime, especially since one in every three Americans has no retirement savings; 56% have less than $100,000, and the lack of enough savings to support retirement exists across all categories.2
Within RetireTech, the 401k/defined contribution space is a particular innovation hotspot, where novel plan designs enable plan sponsors to add new features and income options, either in-plan and/or accessed separately by participants. Some innovations include assisting employees in building emergency funds via Roth plans or other after-tax contribution provisions or linking student loan debt repayment to defined contribution plans, allowing employees to pay down their loans while still benefiting from employers’ retirement contributions.3 In addition, 401k/defined contribution plan sponsors are interested in enhancing legacy administration platforms with new products, services, and technologies to improve employee engagement and outcomes.
Public Pension Systems
Most pension systems have been reinventing member digital experience to drive additional self-service engagement and modernize administration. Other innovations with campaign and CRM technology are driving targeted communication to active and retired public pension members. Enhancements include omnichannel capability to allow member access on smartphone and tablet devices, upgraded security features such as end-to-end encryption for secure email and multifactor identification, and increased scalability overall.
Artificial Intelligence (AI)
Artificial Intelligence (AI) has significantly impacted RetireTech, specifically its abilities to model what/if scenarios and benefits calculations for members and provide plan sponsors with real-time analytics for liquidity forecasting and overall fund management. Public and private retirement programs have implemented chatbots for quick, virtual member and customer support. A potential use case of AI in digital-first platforms for advisors, insurers, and pension administration systems includes improving an individual’s investment strategy through personalized portfolio recommendations.4 AI can also potentially identify populations that will not be able to retire due to insufficient savings, or those that will face other critical decisions, such as what to do when saving into a retirement program is no longer economically efficient.5 In these instances, AI can be used to target members who need education or additional follow-up.
As RetireTech becomes more ingrained in today’s retirement ecosystem, savers of all ages are recognizing the value of its solutions to build resources for their diverse retirement needs. As the nature of retirement continues to change with the increase of younger retirees, economic uncertainty, and a tightening job market, sophisticated RetireTech solutions that harness data and analytics, smart scenario planning, and enhanced user experiences will provide the ballast that savers and retirees need for prolonged smooth sailing.
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1 “$35 Trillion in Retirement Savings Tells a Tale of Two Economies,” Plan Adviser, March 2021
2 Insuretech Spotlight: Retirement Services, Aite-Novarica Group, 2022
3 “Employers Set Sights on Innovative 401(k) Plan Design Changes,” National Association of Plan Advisors, December 2020
4 “OMERS joining think tank to find uses for AI in the pension sector,” Benefits Canada, August 2021