New DC research reveals even millennials are focused on retirement income

Participants of all ages are a bit lost when it comes to understanding how to turn their plan savings into retirement income. Starting the conversation early, using clear language that ties with their vision of retirement, could help them better understand their options.

Our 2021 DC language study took a closer look at the language of defined contribution (DC) plans. Alongside Maslansky + Partners, a communications and research strategy firm, we conducted a national survey of 997 large-plan participants to highlight how the right language could help plan sponsors engage, inform, and motivate employees to save for retirement.

As more baby boomers reach age 65, plan sponsors are under pressure to evolve their plan design, investment menu, and participant engagement efforts to accommodate the needs of this cohort. However, don’t ignore millennials and Gen X. They also want help to plan and prepare for the transition to retirement, perhaps earlier than is expected. Although these participant segments are further from retirement, they want their employers to start the income conversation at age 45 or younger. Too often, it begins around age 55 or older, which for many is considered too late.

What we learned is that participants really wanted their employers to communicate with them about the transition from retirement savings to income generation, especially as it relates to the options within their current plan. As shown in exhibit 1, though most participants felt like they could keep their money in the plan when they retire, 39% didn’t know what their plan allows them to do with their assets. We were surprised that this lack of awareness was also common with 38% of public plan employees.

Exhibit 1: Keeping assets in the plan at retirement

For plan sponsors who prefer participants stay in the plan post-retirement, it’s important to not only frequently communicate this option, but use compelling language about the potential benefits of doing so. As shown in exhibit 2, an emphasis on trust, convenience and low cost — generated by the ability of the plan to negotiate better pricing — resonated with participants.

Exhibit 2: Participants placed value on the plan they’re already in

It’s interesting to note the generational differences on the benefits of staying in plan between millennials and boomers. As shown in exhibit 3, both cohorts preferred to work with a plan they already trust. Millennials preferred the convenience of leaving their money where it is and keeping investment options they’re more familiar with versus lower costs. Boomers, on the other hand, preferred lower costs over convenience.

Exhibit 3: Generational differences on the benefits of staying in plan

In addition to communicating the potential benefits of staying in the plan, it’s important to package the offering in a clear way. While the term “retirement tier” is widely used within the industry to describe the range of investments, income options, tools, and resources to meet the specific needs of employees who are close to or in retirement, as shown in exhibit 4, we found that it was one of the least appealing options. Instead, more specific and benefit-oriented program titles were selected, with “retirement planning program” the most appealing, followed by “retirement ready program.”

Exhibit 4: The most direct labels for retirement programs made the most sense to participants

When participants envision retirement, they tend to be more plausible than idealistic. As we found in our 2018 study, a “dream retirement” was not the goal. Instead, as shown in exhibit 5, people wanted to be comfortable and spend more time doing the things they enjoy. The majority of participants plan to still work — but work less. Having enough retirement income is a big part in helping them achieve this goal.

Exhibit 5: Participants preferred a comfortable vs. dream retirement

Rounding out the study, when it came to the terms preferred to describe what they’ll receive from their retirement savings, as shown in exhibit 6, participants preferred a clear line to be drawn between working life and retired life — and opted for those not associated with working income, such as “paycheck.”

Exhibit 6: Participants preferred nouns that were free from work associations

To learn more, watch our video for more research insights or request the full paper at invesco.com/dclanguage