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Retirement income universe expands, plan adoption on the horizon

2025 U.S. Retirement Market Outlook

January 2025, On the Horizon

The SECURE Acts of 2019 and 2022 spurred the creation of innovative retirement income products to support retirees who stay in plan.1 With an increasingly diverse universe of product offerings and growing interest among plan sponsors to retain retirees amid an aging workforce, the focus is no longer just on product creation but also on plan adoption. Consequently, more plan sponsors are considering whether, how, and when to add retirement income products to their investment menus.

It is important to note that despite an increasing interest in retirement income solutions, priorities differ across plans. For example, employers with younger workforces might prioritize student loan debt repayment programs, while those with high premature withdrawal activity may focus on emergency savings programs. Understanding the specific needs of a plan’s participant population is key when considering if retirement income is a top priority.

Our plan sponsor research revealed increasing recognition among plan sponsors that their participant population is aging. Furthermore, 69% of plan sponsors indicated a preference for retaining retired participants in the plan and more than two‑thirds of plan sponsors (68%) are already beginning to see more retirees keeping their balances in the plan postretirement.

In‑plan retirement income solutions: It’s a marathon, not a sprint

The implementation of in‑plan retirement income solutions is likely to be an iterative, multiyear initiative, and more plan sponsors are moving from an information‑gathering stage to a decision‑making stage. In particular, data show a dramatic decrease in the percent of plan sponsors described by consultants as “having no stated opinion” on in‑plan retirement income solutions from 59% in 2021 to only 19% in 2024. Meanwhile, the percentage of plan sponsors that consultants categorized as "currently offering" or "planning to add" a retirement income solution more than doubled from 8% in 2021 to 18% in 2024 (Figure 1).

More plan sponsors are taking a stance on retirement income

(Fig. 4) Plan sponsor views on in‑plan retirement income investment solutions
More plan sponsors are taking a stance on retirement income

Source: T. Rowe Price, 2024 Defined Contribution Consultant Study and 2021 Defined Contribution Consultant Study. See Appendix for additional detail. 

More plan sponsors are also proactively inquiring about the landscape of retirement income services and products and the status of implementation trends among peers. For plan sponsors prioritizing the retention and support of retired participants, recordkeepers, consultants, and advisors can help navigate the growing universe of retirement income plan design features, services, and solutions to identify those that best align with the needs of their participant populations.

Understanding participant needs: A five‑dimensional approach to retirement income

We believe offering an array of retirement income solutions will be essential to retaining and supporting retired participants. Given the diverse needs of participants approaching and in retirement, no single solution will meet all needs.

An important first step is to identify and fully understand the “problem” that a retirement income solution is expected to solve. Understanding the needs of plan participants can help plan sponsors analyze and evaluate various income solutions to determine the best fit for their plan.

In 2024, T. Rowe Price introduced an innovative framework designed to understand and quantify the unique preferences and needs of retirement investors. The framework includes five key attributes that characterize individuals' experiences in retirement (Figure 2).2 These attributes can be used to evaluate various retirement income solutions and can help to clarify the trade‑offs inherent in each, such as balancing longevity risk with achieving a desired income level. This framework aims to assist plan sponsors in identifying retirement income solutions that emphasize attributes most valued by their participants. For example, an employer offering both a defined benefit plan and a DC plan might prioritize liquidity over hedging against longevity risk.

Key takeaway
With an increasingly diverse universe of retirement income product offerings, the next step is plan adoption. Retirement industry professionals are ready to assist plan sponsors who want to keep retirees in the plan.

Retirement income objectives

(Fig. 5) Five key dimensions of retirement income products

Attibute Definition Real-life meaning

Longevity risk hedge

Portfolio duration/planning horizon

How many years will my retirement savings last?

Level of payments

Income yield

What will the amount of my annual income be?

Volatility of payments

Income volatility

How much can my “paychecks” change from year to year?

Liquidity of balance

Asset liquidity

If a need arises, how much of my savings can I access?

Unexpected balance depletion

Asset preservation

How high is the risk of my money running out earlier than planned?

Source: T. Rowe Price

While the most immediate focus among plan sponsors is typically on recreating a paycheck‑like experience for retirees—which may be achieved through flexible withdrawal options and/or managed payout solutions—data show that people are concerned about longevity risk. In a 2024 survey of approximately 2,500 individual investors between the ages of 40 and 85 with at least $100,000 in DC plan savings, “not running out of money before I die” was identified as a top concern.3

Educational support and effective tools are critical to the participant experience

While retirement income solutions are a key component of repositioning DC plans to meet the needs of retired participants, the participant experience that supplements these investment solutions is just as important. The savings phase of the retirement journey centers on accumulating assets; however, the retirement stage involves diverse participant needs that require a comprehensive range of options, tools, and services.

The transition to retirement can be overwhelming, and many participants struggle to navigate the complexities to find the best fit for their circumstances. For example, nearly two‑thirds of workers who are nearing retirement don’t know how much they can withdraw per month in retirement (Figure 3). An income solution with a set payout rate can simplify decisions and help ease this “analysis paralysis” by offering initial guidance on spending and allowing retirees to adjust as needed.

Key considerations for plan sponsors, consultants, and advisors

  • Different plans have different priorities: The needs of the plan population should drive plan priorities. For some plan sponsors, focusing on other needs such as student loan repayment or emergency savings programs may take precedence.
  • One size does not fit all participants: Unlike the savings phase of the retirement journey where the primary goal is to save, participant needs are diverse in retirement, requiring a broad array of options, tools, and services.
  • Define success to set expectations: The retirement income market is still in its infancy, with modest participant adoption. Rather than focusing on short‑term adoption rates, we encourage plan sponsors to consider success as offering a range of diverse solutions and services for retirees.

Participants need help with distribution options

(Fig. 6) Monthly withdrawal from retirement savings
Participants need help with distribution options

Source: T. Rowe Price, 2023 Retirement Savings and Spending Study. Q: Do you know roughly how much you can withdraw each month from your retirement savings? Preretiree is defined as age 50+ and working. 



Appendix

2021 Defined Contribution Consultant Study: The study included 51 questions and was conducted from September 20, 2021, through November 2021. Responses are from 32 consulting and advisory firms with more than $7.2T in assets under administration.

2023 Retirement Savings and Spending Study: The study was conducted between July 24, 2023, and August 13, 2023. It included 3,041 401(k) participants, full‑time or part‑time workers who never retired, currently age 18 or older, and either contributing to a 401(k) plan or eligible to contribute with a balance of $1,000 or more. The survey also included 1,176 retirees who have retired with a Rollover IRA or left‑in‑plan 401(k) balance.

2024 Defined Contribution Consultant Study: This study included 48 questions and was conducted from January 12, 2024, through March 4, 2024. Responses are from 35 consulting and advisor firms with over 134,000 plan sponsor clients and more than $7.5 trillion in assets under administration.

2024 Defined Contribution Plan Sponsor Considerations and Actions on Retirement Income Study: The survey was fielded from November 14, 2023, through December 22, 2023. Data reflect responses from 119 plan sponsors that have a role in overseeing and/or selecting their organization’s DC plan investment offerings and indicated a combined approximate DC plan asset size of $100 million or greater.

2024 Exploring Individuals’ Retirement Income Needs and Preferences Study: Data reflect responses from 2,582 individual investors age 40 to 85 who were currently enrolled in a DC plan and had at least $100,000 saved in their plan accounts. The survey was fielded from December 2023 through February 2024.

2024 T. Rowe Price Retirement Savings and Spending Study: The study was conducted between July 17, 2024, and August 7, 2024. It included 3,005 401(k) participants, full‑time or part‑time workers who never retired, currently age 18 or older, and either contributing to a 401(k) plan or eligible to contribute and have a balance of $1,000+. The survey also included 1,012 retirees who have retired with a Rollover IRA or a left‑in‑plan 401(k) balance.

1 H.R.1994—Setting Every Community Up for Retirement Enhancement Act of 2019 congress.gov/bill/116th‑congress/house‑bill/1994/text
H.R.2954—Securing a Strong Retirement Act of 2021 congress.gov/bill/117th‑congress/house‑bill/2954/text

2 Berg Cui and Jessica Sclafani, “A five‑dimensional framework for retirement income needs and solutions,” T. Rowe Price, May 2024.

3 T. Rowe Price 2024 Exploring Individuals’ Retirement Income Needs and Preferences Study. See Appendix.

Investment Risks

The principal value of target date strategies is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire. These products typically invest in a broad range of underlying strategies that include asset classes such as stocks, bonds, and short-term investments and are subject to the risks of different areas of the market. A substantial allocation to equities both prior to and after the target date can result in greater volatility over short term horizons. In addition, the objectives of target date strategies typically change over time to become more conservative.

International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for  investments in emerging markets.  Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk.

Personalized solutions are subject to risks including possible loss of principal. There is no assurance that any investment objective will be met.

Active investing may have higher costs than passive investing and may underperform the broad market or passive peers with similar objectives. Passive investing may lag the performance of actively managed peers as holdings are not reallocated based on changes in market conditions or outlooks on specific securities.

Diversification cannot assure a profit or protect against loss in a declining market.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you.

Any tax‑related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

The views contained herein are as of the date written 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.

© 2025 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. RETIRE WITH CONFIDENCE is a trademark of T. Rowe Price Group, Inc.

202401-4142383

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