Young Plan Participants Expect to Rely on Personal Retirement Accounts

Younger 401(k) participants are not counting on Social Security or other guaranteed income sources to support them in retirement. Instead, they plan to depend primarily on their personal retirement accounts, which signals a need for changes in defined contribution plan design before younger generations retire, according to Cerulli Associate’s “U.S. Retirement Edition: The DC Advice & Income Solutions Issue.”

Responding about their expected primary source of retirement income, 58% of Millennial 401(k) participants cited personal retirement accounts, while just 6% pointed to Social Security. By contrast, 39% of Generation X 401(k) participants expected personal retirement accounts to be their main income source, with 30% relying on Social Security.

Furthermore, Millennial 401(k) participants reported prioritizing a personalized retirement income plan, with 27% considering it the most important attribute of their retirement savings. Meanwhile, 24% of Generation X participants nearing retirement reported interest in a tailored retirement income plan. Additionally, 20% said they would like a guarantee that they will still receive monthly payments, even if their assets run out.

“Yes, certainly confidence in Social Security declines with younger generations, leaving most Millennials saying they expect to primarily rely on their personal retirement accounts for income in retirement,” says Elizabeth Chiffer, a research analyst at Cerulli, via email.

She reports plan advisers play a key role in participant education and financial wellness on important topics like retirement income, pointing to evidence from Cerulli’s 2023 survey of retirement specialist advisers—those with at least 50% of their practice assets under administration held in employer-sponsored retirement plans.

“Forty-three percent of retirement specialist advisers believe providing financial wellness, participant communication and education is one of the most valuable services they provide to DC plan sponsor clients,” she says.

Today’s Retirees

According to Chiffer, DC plan participants must be more engaged with the retirement savings process to ensure they are saving enough and have a plan for distributions in retirement, unlike those with guaranteed sources of income from a defined benefit plan.

Current retirees depend more on guaranteed income sources, such as Social Security and pensions. Among retired 401(k) participants, 56% reported Social Security as their main source of income. Just 7% of current retirees reported using personal retirement accounts as their main source of income, though those with higher household investable assets are more likely to do so. Additionally, 4% of retirees cited annuities as their primary income source.

Among retirees who identified Social Security as their main source of income, 14% reported it as their sole source of retirement income. Only 13% of retirees named their defined benefit pension as their primary income source, while 20% of those relying on Social Security said their pension serves as a secondary income source.