Guest Contributor: Qi Sun, financial economist for Pacific Life Insurance Company.

Background: The structure of the American family has evolved significantly in recent decades, reflecting a growing diversity of family arrangements. One increasingly common structure is the dual-income, no-kids (DINK) household (as illustrated in Figure 1). Over 73% of U.S. adults now report being comfortable with a child-free lifestyle, citing financial considerations as one of the top primary factors.

According to the U.S. Department of Agriculture's Expenditures on Children by Families, 2015 report, the average cost of raising a child from birth to age 18 was approximately $233,610, excluding college expenses—a figure likely higher today due to inflation. This significant financial burden prompts an important question: does the absence of childcare costs enable DINK families to save more effectively for retirement, and how do their retirement trajectories differ from those of traditional dual-income families with children (DIWK)?

Findings: This research explores the retirement savings behaviors of DINK and DIWK families using data from the 2022 Survey of Consumer Finance (SCF). Despite having higher disposable incomes, DINK families contribute less to employer-sponsored retirement plans in their early years. However, their retirement savings accelerate significantly after mid-career, surpassing DIWK families and ultimately resulting in an average asset gap of $200,000 in favor of DINK households by age 65. (The predicted retirement assets include both workplace retirement accounts and Individual Retirement Accounts (IRAs) and is predicted after regression analysis.)

This trend highlights notable lifestyle differences. DINK families often prioritize investing in themselves, dedicating more resources to personal hobbies and interests. This lifestyle tends to emphasize present enjoyment over long-term planning, particularly in the early stages of their careers. For instance, a recent Harris Poll report revealed that DINK families spend significantly more than the average American household on discretionary purchases such as dining out, travel, and entertainment. However, as retirement approaches, DINK families demonstrate a remarkable ability to shift focus, redirecting their resources toward building substantial savings without the financial obligations of raising children.

Bottom Line: The rise of DINK households serves as a timely reminder of the evolving dynamics within American society. For the retirement industry, the first step is to understand the unique financial behaviors of DINK families and develop tailored strategies that encourage early and consistent retirement savings. Equally critical is addressing how, without the support of adult children, these households can effectively transform their savings into sustainable income to ensure financial security in later life.

Insights shared by guest contributors are their own and do not represent the views of DCIIA or the RRC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Background: The DCIIA RRC Fall Summit convened with over 175 members and guests for a half-day of insights from leading experts and industry practitioners. Hosted at BNY Mellon, the event featured dynamic discussions on critical retirement industry topics, including retirement income solutions, participant engagement, managed accounts, and the evolving role of digital tools. RRC members can access slide decks, speaker information, a replay, and more on our website. Recaps will be available soon and also posted on the site.

Findings: Jose Minaya, Global Head of BNY Investments and Wealth, opened the event with remarks on the importance of collaboration in advancing the retirement industry, emphasizing the power of collective action to achieve robust outcomes for participants.

Key sessions included:

1. Understanding Plan Sponsors: Panelists examined industry blind spots, highlighting gaps between employer actions and participant needs, and explored practical retirement income strategies.
   
2. Personalized Retirement Income Solutions: Panelists discussed implementing tailored solutions, balancing participant priorities, and leveraging default options to improve outcomes.
   
3. Managed Account Working Groups: Attendees debated the benefits, communication challenges, and legal risks associated with managed accounts. The session highlighted the need for transparency and participant education.
   
4. AI’s Potential for Participant Outcomes: The session demonstrated how generative AI is reshaping portfolio design, alpha delivery, and participant experiences.
   
5. Caregiving Challenges: Experts underscored the financial and emotional toll of caregiving and explored employer initiatives to support affected workers.

Bottom Line: The Summit concluded with updates on RRC research, including studies on recordkeeper priorities and collective investment trusts, and a preview of future research projects aimed at driving industry innovation.

Additional session details and resources are available to RRC members on the website.

Guest Contributors: Sudipto Banerjee, Ph.D., Director of Retirement Thought Leadership, T. Rowe Price; Jessica Sclafani, CAIA, Vice President, Global Retirement Strategist, T. Rowe Price

Background: Target date strategies have become the primary investment vehicle for U.S. employees in defined contribution plans. Designated by regulators as acceptable qualified default investment alternatives (QDIAs), these diversified strategies automatically adjust portfolio risk based on a set retirement date, making them a prevalent choice for retirement savers. However, the growing interest in personalization—evident in the increasing adoption of managed accounts—suggests that tailored investment solutions could further enhance retirement outcomes, particularly as participants near retirement.

Findings: Personalization is seen as the next evolution in target date solutions. While target date strategies have supported more successful outcomes for retirement savers, data show that, as participants age, disparities in retirement savings within age groups are evident. For instance, analysis of the Federal Reserve’s Survey of Consumer Finances showed stark differences in savings within the same age groups, even after accounting for income.

This demonstrates that factors other than income contribute to savings disparities. This diversity in financial circumstances shows a need for personalized strategies to address varying retirement preparation needs. By leveraging advancements in technology, the personalization of target date solutions is now more feasible and cost-effective than before.

Integrating individual and demographic financial data—such as marital status, income, debt-to-income ratios, and net worth—into target date strategies could better align them with personal financial realities and help generate improved risk-adjusted outcomes. We advocate for a “target date AND personalization” approach rather than seeing these as mutually exclusive options.

By integrating personalization into the existing target date framework, plan sponsors can enhance the retirement experience for participants nearing retirement without requiring a shift to different investment methodologies or building blocks.

Bottom Line: Introducing personalization into target date solutions could considerably improve retirement outcomes. The ability to tailor investments using available recordkeeping data and optional participant-provided information can make personalization accessible and beneficial without imposing significant engagement burdens. Maintaining a consistent investment methodology and using the same investment building blocks across both target date and personalized solutions are critical to ensuring a coherent participant experience. Personalized strategies can be achieved through a dynamic QDIA structure—one that automatically transitions participants into tailored portfolios as they near retirement—or as an opt-in service.

Target date solutions have significantly advanced the U.S. retirement landscape, and personalization represents a promising frontier. Leveraging technology and data integration can enable more nuanced and effective retirement savings strategies, potentially offering the best of both worlds. It no longer needs to be target date solutions or personalization—it can be both!

Insights shared by guest contributors are their own and do not represent the views of DCIIA or the RRC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Important Information
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are as of September 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment adviser.
© 2024 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

Guest Contributor: Meghan Farrell, Manager, Thought Leadership - Employer Markets for Allianz Life Insurance Company of North America (Allianz)

Background: Allianz Life conducted an online survey, the 2024 2Q Quarterly Market Perceptions Study, in May 2024 with a nationally representative sample of 1,005 individuals age 18+. The study included an oversample of respondents who identified as Black/African American (277 responses); Hispanic (265 responses); Asian/Asian American (265 responses). In this Research Minute, we will delve into the study's findings on participants' demand for in-plan guaranteed lifetime income solutions, such as annuities.

Findings: Generational differences and demographic factors significantly impact individuals' perceptions and preferences regarding in-plan annuities in their employer-sponsored retirement plans. Gen X and Millennials showed the highest levels of interest, as 68% and 67%, respectively, considered adding an annuity to their plans.

These generations are particularly concerned about potential retirement fund depletion and express greater interest in products that offer supplemental guaranteed income beyond Social Security and protection from market downturns.

Source: 2Q 2024 Quarterly Market Perceptions Study, Allianz Life Insurance Company of North America (Allianz)

When examining specific product features, all generations placed value on accessibility, flexibility, portability, and growth potential. However, Gen X had a heightened focus on features such as additional withdrawals and flexibility in choosing when and how to take income from the annuity. These preferences align with Gen X's concerns about running out of money in retirement and the need for options that can adapt to changing circumstances.

Ethnicity also played a role in individuals' awareness and interest in in-plan annuities. Hispanic participants exhibited the highest desire to learn more about annuities, with 77% expressing interest, followed by Black/African American participants at 74%. Asian/Asian American participants displayed slightly lower interest at 68%, while white participants showed the lowest interest at 62%. This aligns with their desire for retirement plan options that provide protection for their money during market downturns. The majority of Hispanic (82%), Black/African American (81%), and Asian/Asian American (79%) participants expressed a wish for more options that safeguard their money. In contrast, 71% of white participants shared this sentiment.

Apart from protection in market downturns, participants across all ethnicities valued other annuity features including flexibility, accessibility, IRA portability, growth potential, and personalization.

Bottom line: Understanding these generational and demographic differences can assist employers in tailoring their retirement plans to meet the unique needs and preferences of their workforce.

You can find an extended summary of this study here.

Insights shared by guest contributors are their own and do not represent the views of DCIIA or the RRC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

For institutional use only, not for use with the public.

Background: In 2024, the DCIIA RRC conducted two online recordkeeper surveys to better understand their retirement income and distribution capabilities. Eighteen recordkeepers were surveyed with a large range of participants and assets under management. This week’s Research Minute, part two of the series, will more closely examine the partnerships and solutions that recordkeepers are implementing.

Findings: Sixty five percent of recordkeepers are implementing proprietary solutions that can be used by multiple clients, with 47% of recordkeepers focusing on “coopetition” to bring in strategic partners; 53% leveraging external providers (such as fintechs or dedicated technology firms); and 39% using both. These partnerships aid cost-effective outsourcing and shared resources amid an environment of limited bandwidth and fee pressures.

Further, nearly 75% of recordkeepers with $100B-$400B AUM are leveraging external providers. Recordkeepers with assets greater than $300B AUM have access to custom solutions, but these types of solutions remain limited.

Bottom Line: There is a significant burden on recordkeepers in managing the technical demands of implementing and maintaining new retirement income solutions. To address these challenges, recordkeepers are adopting strategies such as developing proprietary solutions that can serve multiple clients, forming strategic partnerships, and leveraging external technology providers. Next week’s Research Minute will more closely examine technological development needs.

See last week’s Research Minute, "How are recordkeepers adapting retirement income strategies for the future? (part one)"