Displaying items by tag: retirement

Insurance companies are increasingly turning to asset-backed bonds to support annuity payouts amid surging demand for retirement income products. Securitized assets now make up a quarter of insurers’ bond holdings, with exposure growing by $365 billion since 2017, according to Morgan Stanley. 

Higher interest rates have fueled record annuity sales, reaching $432.4 billion in 2024, marking a 12% annual increase. This trend has intensified insurers’ appetite for asset-backed securities (ABS) and collateralized loan obligations (CLOs), which saw combined holdings rise to $312 billion last year. 

Esoteric ABS, including whole business and digital infrastructure securitizations, have become key components of insurers’ portfolios due to their yield and duration advantages. As demographic shifts drive continued demand for annuities, Morgan Stanley projects structured credit exposure to grow at a 6% annualized rate through 2027.

Finsum: It’s important to understand the underlying structure of annuities, because it tells a compelling story for their high demand. 

The 401(k) industry has played a critical role in improving retirement security, yet challenges remain, including access gaps, rising costs, and demographic shifts. Defined contribution (DC) plans are evolving to address these issues, with major trends shaping the future of retirement savings. 

Affordability is increasingly strained as rising costs for essentials make it harder to prioritize retirement, especially for mid- and lower-income earners. Legislative changes, such as SECURE 2.0 implementation and potential tax policy shifts, could impact retirement savings strategies in the coming years. 

Meanwhile, industry consolidation and integration are reshaping financial services, enhancing efficiency and expanding participant-focused solutions. Innovations in AI, private assets, and fiduciary services are driving new approaches to personalized retirement planning, making financial security more accessible and adaptable.

Finsum: We should be very weary of policy changes to 401(k) plans, while it’s unlikely that Trump makes any changes, the sheer number of policy changes make it worth monitoring. 

Retirement is often the most significant financial commitment for American households, with many needing over $1 million to sustain their post-work years. A Prudential survey of 198 financial advisors found that 80% use specialized portfolios for retirees, particularly those well-versed in retirement income planning. 

Around half of retiree clients prefer living off portfolio income, necessitating investment strategies distinct from traditional total return approaches. Advisors showed the strongest interest in long-term bonds, U.S. large-cap equities, and Treasury Inflation-Protected Securities (TIPS) for retiree portfolios. 

Knowledgeable advisors were significantly more inclined to increase allocations to TIPS and long-term bonds compared to those less experienced in retirement planning. Overall, there is considerable interest in income-focused investment strategies and multi-asset portfolio solutions tailored to retirees' needs.

Finsum: Thinking of how strategies and portfolio solutions can be dynamic to suit clients shifting needs is critical to making clients feel supported

A key advantage of a 401(k) is its generous contribution limits, which allow workers under 50 to save up to $23,500 in 2025, not including any employer match. Those 50 and older can save even more, with a standard limit of $31,000. 

Thanks to a recent SECURE 2.0 Act update, workers aged 60 to 63 can contribute an additional $11,250 as a catch-up, bringing their total contribution limit to $34,750 for 2025. This higher limit, tied to inflation, could increase further in the future but reverts to $7,500 once participants turn 64.

Maximizing contributions is most beneficial for high earners looking to reduce taxable income while saving for retirement, but even smaller contributions can significantly impact long-term savings. 

Finsum: Advisors and investors should stay informed about future 401(k) changes to make the most of their retirement savings opportunities.

The defined contribution (DC) landscape is poised for transformative change, driven by advancements in retirement income solutions, small employer plans, and the integration of retirement and wealth management. 

Retirement income strategies have reached a pivotal moment, with a surge in participant demand, regulatory support, and innovative solutions like market-based, annuity, and hybrid options redefining how retirees access income. Meanwhile, small employer plans are experiencing rapid growth, fueled by state mandates, tax incentives, and scalable technology, democratizing retirement savings access for workers in smaller businesses. 

The convergence of retirement and wealth management is reshaping financial planning by integrating holistic strategies that address retirement, investment, and estate planning needs. Enhanced digital tools and scalable platforms are making these services more accessible, enabling firms to provide personalized, institutional-quality financial solutions.

 As the industry evolves, collaboration among stakeholders is critical to ensure these innovations translate into improved outcomes for U.S. workers. 

Finsum: By embracing these shifts, the DC ecosystem can help deliver financial security and peace of mind to a broader audience.