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T. Rowe Price Study Reveals Income Increasingly Important in Retirement Planning
With interest rates going down, income will be even more important
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Today we’re talking about a new study from T. Rowe Price that shows the increasing importance of personalization and retirement income in the financial advice industry.
So, let’s get into the Industry Chatter!
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INDUSTRY CHATTER
T. Rowe Price's new 2024 Defined Contribution Consultant Study highlights significant shifts in retirement planning strategies, particularly when it comes to personalization and retirement income. The study, surveying 35 leading firms, reveals consultants, advisors and plan sponsors have significantly shifted their strategies and priorities over the last few years.
A striking change since 2021 is the increased engagement with retirement income strategies. In 2021, 59% of consultants and advisors reported that over half their plan sponsor clients had no clear stance on retirement income. By 2024, this figure plummeted to 19%, indicating a growing prioritization of retirement income in plan offerings.
Personalization Has Become Key
Jessica Sclafani, global retirement strategist at T. Rowe Price, notes that consultants and advisors are seeking "solutions that offer choice, personalization, flexibility and are cost-effective." The study shows a preference for simple, systematic withdrawal capabilities as the most appealing strategy for delivering income to retired participants.
Personalization, especially for near-retirees, emerged as a key theme. Managed accounts are gaining traction as opt-in investment options, though target date funds remain the predominant default investment alternative. The study also reveals strong support for transitioning from mutual fund-based target date solutions to collective investment trusts, primarily for cost efficiency.
Fixed Income Diversification Intensifies
Fixed income strategies have evolved in response to post-pandemic interest rate increases. The study reports that 89% of respondent firms now prioritize diversification opportunities, up from 48% in 2021. There's also growing support for non-traditional bond allocations within target date solutions, with active management favored in high-yield bonds and emerging markets debt.
The research anticipates growth in in-plan emergency savings programs, with 70% of firms expecting such offerings to become more common within the next three to five years.
These findings underscore a significant shift in the retirement planning landscape, with increased focus on personalized, flexible, and cost-effective solutions to meet the evolving needs of plan participants across different life stages.
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MARKET RECAP
The Federal Reserve cut interest rates by 50 basis points at its September meeting, lowering the target range to 4.75%-5%. This bold move defied the predictions of most economists who had anticipated a more modest 25-basis-point reduction.
The Fed also hinted at the potential for additional cuts in the coming months, with the updated dot plot revealing a more aggressive rate-cutting trajectory than forecasted in June.
Fed Chair Jerome Powell highlighted the labor market as a key focus, stressing the importance of acting preemptively to sustain robust employment. “The time to support the labor market is when it's strong, not when you begin to see layoffs,” Powell said.
Powell also called for caution, framing the rate cut as part of a “recalibration” rather than a signal of a broader policy shift. He reiterated that future decisions would remain data-dependent, underscoring the Fed's flexibility in responding to economic conditions.
Wall Street analysts reacted by adjusting their rate cut forecasts more aggressively, reflecting expectations of a looser policy trajectory ahead.
Both gold prices and major U.S. stock indices, including the S&P 500 and Dow Jones, surged to record highs following the Fed’s decision.
Fed Fuels Growth
In an exclusive interview with Benzinga, a Lazard small-cap expert highlights the Federal Reserve’s shift to a pro-growth stance, which is expected to boost Russell 2000's performance. This policy pivot could create favorable conditions for investors in smaller companies, which trade relatively cheaper compared to large-cap counterparts.
Mortgage Demand Rises
Mortgage rates fell to near 6%, spurring a surge in demand for both refinancing and home purchases. As homeowners and buyers capitalize on these lower rates, market activity in the real estate sector is picking up momentum, with increased interest in locking in favorable mortgage terms.
iPhone Demand Lags
Early pre-order data for Apple Inc. (AAPL)’s iPhone 16 suggests weaker-than-expected demand, raising concerns about the device’s market performance. Some analysts believe Apple could still exceed expectations with potential surprises in upcoming earnings reports.
GM Expands Charging
General Motors Co. (GM) has enhanced electric vehicle charging access, opening 17,800 Tesla chargers to all GM drivers via an adapter. This move broadens charging options for GM’s EV customers, potentially boosting EV adoption and aligning with the company’s electrification goals.
THE WEEK AHEAD
Economic Data
Monday: US and EU preliminary PMI numbers for September
Tuesday: Australian interest rate decision
Wednesday: US new home sales and building permits
Thursday: US durable goods orders and pending home sales
Friday: US core PCE inflation numbers
Earnings
Click here for the full calendar of economic data and earnings reports.
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