Top Retirement Trends for 2023
Surging inflation, market volatility, and a looming recession continue to smash retirement savings accounts and leave older Americans and those saving for their sunset years battered by prices of basic commodities, including food and gas. According to a 2022 study published by Allianz Life, 54 percent of Americans reported either reducing or fully discontinuing retirement saving due to the impact of suddenly spiking inflation on their daily household expenses.
“Plan sponsors, advisors, legislators, and regulators are responding by pursuing improved retirement readiness and longevity risk for their participants amid a complex new market regime,” says Gary Isler, Senior Vice President, Investments at David Lerner Associates.
While change often comes with uncertainty and can create new opportunities. These retirement trends are expected to emerge in the second half of the year:
More Plan Sponsors Will Offer Guaranteed Lifetime Income
About 35 percent of pre-retirees express “major concerns” about running out of money in retirement. There is increased interest among plan sponsors in retirement income solutions, driven by the desire to keep participants in the plan throughout retirement. As a result, there is an unprecedented wave of product innovation, which includes embedding annuities as part of target date funds, allowing participants the option to annuitize a portion of their balance.
According to the 2022 PIMCO US Defined Contribution Consulting Study, 76 percent of plan sponsors advised by surveyed consultants now choose to keep assets in the plan throughout retirement. This represents a material trend reversal from just a few years ago.
To effectively retain assets through retirement, plans must accommodate income-producing products and services for retired participants.
New Regulations Will Open Doors to Better Retirement Planning
Retirement Plan Contributions – The IRS announced record-high maximum annual contributions to retirement accounts for 2023. Employees with a 401(k), 403(b), the federal government’s Thrift Savings Plan, and most 457 plans can contribute up to $22,500 in 2023, up 9.8 percent from the limit of $20,500 in 2022.
Health Savings Account (HSA) – Similar to retirement plan contributions, contribution limits to HSAs have received an inflationary bump in 2023. The maximum amount you can contribute to your HSA in 2023 increased by $200 for individuals and $450 for families.
Retirement Plan Distributions – Starting in 2023, retirees must begin taking required minimum withdrawals (RMDs) from their tax-advantaged retirement accounts when they turn 73. This is an increase from 72 in 2022 and will rise to age 75 by 2033.
Medicare – For the first time in over a decade, premiums and deductibles on Medicare Part B, which covers doctor visits and other outpatient care not covered by Medicare Part A, are decreasing. The monthly premium for Medicare Part B will be $164.90 for 2023, which is a 3 percent decrease from $170.10 in 2022.
Social Security – Social Security beneficiaries are enjoying a pay raise thanks to an 8.7 percent increase in the Social Security COLA (cost-of-living adjustment) for 2023. This is the largest increase since 1981 and raises the average retiree benefit by over $140 per month.
Full Retirement Age (FRA) – In 1983, Congress voted to gradually raise the Social Security FRA from 65 to 67. Four decades later, the change is almost complete, with FRA reaching 66.5 years in mid-2023.
Investors Demand More Responsible Investing (RI) Options
Another trend is the growing popularity of varied investment options, different from traditional defined benefit plans.
“This shift is driven by a yearning for more control over investments and the ability to personalize portfolios to meet risk tolerance and individual goals,” adds Isler.
An increasing number of investors, especially the younger generations, not only demand a healthy return on their retirement savings but also investments in companies that practice social responsibility or ethical practices.
More than three-quarters (76%) of investors say that the risks and opportunities related to Responsible Investing should always be a part of the investment process.
In response, plan sponsors are looking to provide a more personalized service to participants, especially those approaching retirement.
Workers Demand for Financial education and Wellness programs
In times of economic uncertainty, people turn to experts for guidance. Educational resources and access to financial advice can help workers assess their retirement readiness and save appropriately.
According to data from Ernst & Young, companies with financial wellness programs in place saw increased employee retention, well-being, and productivity.
Retirement trends in the United States are shifting. The United States DC market has evolved from a supplemental savings vehicle to becoming a key retirement vehicle, supporting workers throughout their retirement.
Challenging times often call for new solutions. For the retirement industry, those changes could, in due course, lead to more savings options and better retirement security.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.
This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.
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