Workplace Savers Feel ‘Off Track’ to Retire, Seek Sources of Guaranteed Income

Retirement confidence has been on a steady decline since 2021, as only 56% of workplace savers this year said they feel “on track” with their savings to retire with the lifestyle they want, compared to 63% in 2022 and 68% in 2021, according to a new BlackRock study. 

The lack of confidence has not translated to a decrease in savings rates, which held steady year-over-year in BlackRock’s study. But participants did express that having guaranteed retirement income would quell some of their fears about inflation and market volatility eroding their savings, even as plan sponsors remain reluctant to provide retirement income options, according to the researchers 

“Retirement income is the No. 1 topic our clients are talking to us about,” Anne Ackerley, head of BlackRock’s retirement business, said via email. “It’s interesting to see that plan sponsors are realizing that these plans have been effective for savings prior to retirement, but not necessarily for optimized spending in retirement.” 

Across generations, workplace savers cited four key concerns they believe are eating away at their retirement confidence: increased market volatility, high levels of inflation, recessionary fears and lack of retirement income. 

Approximately 50% more workplace savers said that hardships related to high inflation and volatility have set them back with saving for retirement compared to last year, and 29% of workplace savers plan to retire later due to these economic conditions. 

BlackRock’s 2023 “Read on Retirement” survey provides insight from 465 plan sponsors, all of which have at least $300 million in assets, as well as 1,339 workplace savers, 1,319 independent savers and 304 retirees. All respondents were interviewed using an online survey, which was in the field from March 21 to May 24. 

Plan sponsors share the same fears as their participants, as only 46% said they are “highly confident” in the ability of their participants to stay on track during a period of market volatility. These plan sponsors also recognize the importance of their job, as 98% said they feel responsible to help participants generate and manage their income in retirement, according to the report. 

Regarding investing, 71% of Generation Z workplace savers are not confident in managing investments in their plan themselves, the survey found. The survey also found that 60% of the same cohort could harm the performance of their own investments, as they would consider selling during a market downturn.  

Demand for Guaranteed Income 

A guaranteed stream of income in retirement is something most employees are seeking, according to the study: BlackRock found that 89% of savers said having guaranteed income would positively impact their current well-being. In addition, 71% said they would save more if their plan offered them a guaranteed retirement income solution.

Savers also expressed interest in more diversified investment portfolios. About 98% of respondents said they like the idea of a “well-diversified fund where you can opt in to have a portion automatically converted to guaranteed income as you near retirement.”

Despite this demand for guaranteed income solutions beyond what Social Security can offer, employers remain reluctant to offer in-plan annuities and other guaranteed solutions. Some industry experts say this is because retirement plan committees are held back from making a selection by fear of missing out on better offerings and are concerned the plan will be stuck with the selection.  

One concerning finding is that only 37% of plan sponsors said they feel “extremely confident” that their plan enables participants to know how much of their balance can be spent each year in retirement.  

When BlackRock asked this question in 2020, 61% were confident they were helping their participants understand how much they would be able to save in retirement, according to Ackerley. 

“The drop to 37% this year, we believe, indicates that plan sponsors understand that their participants need better tools to help them understand how much they can spend in retirement due to increased volatility and longer average lifespans,” Ackerley said in an emailed statement.  

Ackerley encourages plan sponsors to consider both increased education and tools, as well as investment solutions, as part of a holistic approach to retirement income. 

Lack of Investment Knowledge 

Other factors possibly contributing to participants’ low retirement confidence are a lack of familiarity with certain investment strategies and not consulting with a financial adviser: Even though nearly 80% of workplace savers said they would be interested in investing in an actively managed fund, a potential way to limit downside risk, 41% said they are not familiar with active investing strategies.  

“In our view, the plan sponsor and financial advisers both have an opportunity to work together to help meet savers where they are in their retirement journey,” Ackerley said. “The data shows that many workplace savers see their employer as the source of trusted information on how to navigate their plan: Over [75%] of workplace savers say it would be helpful if their plan provided specific education around the investments available.” 

Due to last year’s volatile market performance, many plan sponsors now believe active strategies can be a “ballast against market shocks,” as they are designed to outperform the market and build resilience into portfolios, according to the survey. It appears there is an opportunity for plan sponsors to educate participants on active management and consider adding these funds to their investment lineup.  

On a positive note, 30% of savers who said they feel on track for retirement cited having access to an adviser as a reason why. Financial uncertainty is driving savers toward trusted sources to help manage their retirement investments, and BlackRock reported that, this year, 21% more savers stated a preference for have a professional manage their investments—as opposed to doing it themselves—than in 2022.  

As a whole, the majority of respondents said it would be helpful for their employer to automatically re-allocate their investments to something more appropriate for their age. Many savers opt for target-date funds in their plan because of the convenient access to professional management, according to BlackRock.