Saving for retirement has become one of the most significant financial goals for many Americans, and the 401(k) and defined contribution marketplace is burgeoning. Retirement assets now represent a significant portion of household financial assets. At year-end 2006, investors held $8.3 trillion in IRA and defined contribution plans. The marketplace is enjoying unprecedented opportunities.
Issues discussed in this report include:
The Pension Protection Act of 2006, which has ignited the defined contribution industry with automatic enrollment and default investment options, and made it easier to transfer funds between different types of accounts. The three default options—target-date funds, balanced funds and managed accounts—are likely to experience significant growth.
Investor inertia and resistance to saving for retirement due to financial restraints and psychological factors. Overcoming this issue would present a significant opportunity for providers. Examining universal applications of behavioral finance concepts may help address this problem.
Increasing competition in the marketplace, which has created more concern about plan retention. The imminent wave of Baby-Boomer retirements is likely to represent significant outflows from defined contribution plans.
Shifting industry focus from the accumulation phase to the “decumulation” phase. Some speculation exists that 401(k) plans may take a page from the book of the 403(b) by adding annuity or annuity-like options.
The popularity of simple retirement savings vehicles, such as lifecycle and lifestyle funds, which may be driving a new emphasis in single-decision solutions.
Mintel’s insightful analysis of the market and its own consumer survey data will guide retirement savings providers in successfully reaching a wider array of consumers, seizing opportunities for growth.
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