As 2025 unfolds, MFS Investment Management’s Retirement Outlook provides a comprehensive guide for retirement plan sponsors, participants, and advisors navigating an evolving economic landscape marked by interest rate adjustments, regulatory shifts, and persistent concerns over retirement readiness. Drawing from recent surveys and market analysis, the outlook emphasizes the need for proactive strategies to bridge gaps between participant expectations and retiree realities, while addressing key priorities like SECURE 2.0 implementation and litigation risks. With U.S. equity markets posting strong gains in 2024 and the Federal Reserve embarking on a rate-cutting cycle, optimism abounds, but underlying challenges such as inflation and extended lifespans demand careful planning to ensure sustainable retirement outcomes.
The market environment sets a cautiously positive tone for 2025. The Federal Reserve initiated rate cuts in late 2024, reducing the federal funds rate by 75 basis points in September and November, responding to moderating inflation and labor market signals hinting at a soft landing. Fixed income markets faced volatility, with the Bloomberg US Aggregate Index returning 2.9 percent through November 2024, while equities surged, driven by a post-election rally. The S&P 500 Index achieved a 28.1 percent return, and the MSCI All Country World Index rose 20.3 percent over the same period. MFS highlights key themes for the year, including the U.S. election’s implications, risks of a “no landing” economic scenario where growth persists without slowdown, and global opportunities amid challenges like geopolitical tensions. Plan sponsors are urged to reassess asset allocations, potentially incorporating diversified fixed income options like intermediate credit or global bonds to capitalize on higher yields while managing risks.
Participant confidence in retirement remains a critical concern, with surveys revealing stark disconnects between pre-retirees’ worries and retirees’ experiences. The 2024 MFS Global Retirement Survey, involving 725 U.S. defined contribution plan participants and 310 retirees, shows only 36 percent of participants feeling very or extremely confident about retiring at their desired age, compared to 52 percent of retirees confident their assets will last. Inflation and insufficient savings top the list of worries across generations, with 76 percent of participants believing they need to save more than planned—a rise from previous years—and 61 percent expecting to work longer. Generational nuances emerge: Gen Z prioritizes digital tools for budgeting, Millennials juggle competing priorities like housing, Gen X seeks advice on investment shifts, and Boomers focus on healthcare coverage. Participants often underestimate Social Security’s role, expecting it to cover less than 25 percent of income, while retirees rely on it for over 40 percent. Moreover, 61 percent of participants anticipate a gradual transition to retirement, but 75 percent of retirees report a abrupt “hard stop” due to health, layoffs, or family issues. This mismatch underscores the value of employer programs for phased retirement, yet only 22 percent of sponsors offer them, with 19 percent considering implementation.
Encouragingly, positive behaviors are evident: 51 percent of participants started saving early, 37 percent stayed invested during market downturns, and 36 percent consult financial advisors. However, broader trends from the 2025 DC Retirement at a Glance highlight ongoing challenges, such as one in four Americans in the “sandwich generation” facing caregiving burdens that disrupt savings—70 percent report significant impacts on retirement plans, with 59 percent reducing or halting contributions. Employer-employee disconnects persist, with 78 percent of employers believing workers are prepared, versus just 45 percent of employees agreeing. Social Security literacy is low, with only 38 percent confident in their knowledge and an average quiz score of eight out of 15. Globally, pessimism abounds, as 46 percent of working-age adults surveyed by Natixis believe a “miracle” is needed for secure retirement.
Plan sponsor priorities for 2025 center on regulatory adaptation and operational efficiency, according to the 2024 MFS DC Plan Sponsor Survey of 166 U.S. sponsors. For the second year, 82 percent prioritize reviewing and adopting SECURE 2.0 provisions, such as increased catch-up limits for ages 60-63, mandatory Roth catch-ups for high earners (with a transition through 2025), automatic enrollment for new plans, and expanded part-time eligibility. Other focuses include holistic investment lineup evaluations (57 percent), operational issues (43 percent), refining income philosophies (37 percent), and governance improvements (36 percent). ESG considerations have declined sharply to 5 percent, reflecting political sensitivities. Top worries include the evolving regulatory landscape (71 percent, up from 55 percent in 2023), litigation risks (49 percent), and fees (40 percent). The Republican-led government post-2024 election is expected to ease fiduciary regulations, potentially reverting ESG rules and facilitating alternative assets like private equity in DC plans.
Litigation trends show a decrease in 2024, but 10 percent of sponsors faced ERISA class actions in the past five years. Key cases involve improper use of forfeited assets and pension risk transfers (PRT), where insurers are accused of using riskier investments. The Supreme Court’s overturning of Chevron deference in June 2024 could spur more challenges to agency rules, including DOL’s ESG guidance. An upcoming ERISA case on prohibited transactions may lower proof burdens for plaintiffs, increasing costs. Sponsors are advised to document processes rigorously to mitigate risks.
Defined benefit (DB) plans offer a brighter spot, with corporate funded status reaching 103.4 percent through October 2024, up from 98.5 percent at year-end 2023. PRT activity hit $26 billion in annuity buyouts through Q2 2024, though lawsuits persist. Public plans improved to 82.8 percent funded by September 2024, with allocations to illiquids like private equity holding steady at 28 percent over the decade. Higher yields suggest shifting toward fixed income for liquidity and returns, enhancing liability-driven investing (LDI).
Longer lifespans amplify retirement challenges, with average retirement duration now 18-21 years, up from 8-14 years a century ago, and a shift from DB to DC plans (78 percent today). This necessitates earlier, higher savings and aggressive investing. Target-date funds (TDFs) with assets reaching $4.37 trillion in mid-2025, including $103 billion in income-focused variants, serve as defaults, but core menus should offer active and passive options for engaged participants. Interest in alternatives grows, with 45 percent of participants open to private equity or debt, potentially boosting contributions.
Looking ahead, MFS recommends enhancing education on investments and Social Security, promoting automatic features like enrollment and escalation, and providing phased retirement options to improve morale and productivity. With account balances rising—average 401(k) at $137.8K and IRA at $131.4K in Q2 2025—and millionaire counts up 16 percent to over one million, momentum exists, but addressing confidence gaps is essential. Regulatory supports like e-delivery defaults and potential tax expansions on health benefits could bolster systems. Ultimately, a disciplined, long-term approach—focusing on accumulation, active management, and personalized advice—will help navigate 2025’s uncertainties, ensuring retirement security in an era of extended longevity and shifting responsibilities.
