Traditional retirement benchmarks often don’t reflect employees’ different needs and priorities as they approach retirement. This article explores how individual-targeted outcomes can personalize retirement goals and how a managed account service may help support progress toward them.
Plan sponsors have made meaningful progress in helping employees prepare for retirement through features such as automatic (auto) enrollment, auto‑increase, and default investment options like target date funds (TDFs).
Even with these plan improvements, many participants still struggle to understand how much to save or whether their efforts will support the lifestyle they want in retirement. One reason is that retirement readiness has traditionally been measured against simplified benchmarks, most commonly the idea that employees should replace 70%–80% of pre‑retirement income.
As the workforce become more diverse in income levels, career paths, family situations, and retirement expectations—plan design has been shifting toward more personalized definitions of success. That shift can start with rethinking how retirement outcomes are measured and supported.
A different approach that plan sponsors have been exploring is individual-targeted outcomes. Rather than evaluating readiness against a single guideline, this approach begins with each participant’s personal circumstances and the income they may need to maintain their standard of living in retirement.
An individual targeted outcomes approach can do three things:
- Defines a personal income target. Retirement income needs are estimated based on factors such as earnings, taxes, savings behavior, and anticipated lifestyle, rather than relying on a one-size-fits-all benchmark.
- Measures progress against that target. Readiness is evaluated based on how closely a participant is tracking toward their income goal and timeline, providing a clearer, more relevant view of progress.
- Creates a foundation for personalized action. Once the desired outcome is defined, subsequent decisions, such as how much to save, how to invest, and how strategies may need to adjust over time, can be aligned with the target.
The commonly cited 80% figure is based on a simplified view of retirement expenses. It assumes payroll taxes and retirement contributions stop, tax rates change, and work-related costs decline. For some participants, this approximation may be close. For many others, it likely isn’t.
Consider three illustrative examples:
- A participant earning $40,000 may see limited cost reductions at retirement and needs closer to 84% of their final pay to maintain their lifestyle.
- A participant earning $250,000 may see more significant changes in taxes, savings, and spending patterns and need closer to 66% of their final pay.
- A participant earning $400,000 may experience even more significant changes in taxes, savings, and spending patterns, needing closer to 56% of their final pay.
| Expenses likely to change in retirement | Income just before retirement | ||
|---|---|---|---|
| $40,000 | $250,000 | $400,000 | |
| Social Security and Medicare taxes | -$3,060 | -$15,514 | -$19,039 |
| Contribution to a defined contribution plan | - $2,000 | -$24,500 | -$24,500 |
| Difference in taxes at retirement | $0 | -$7,500 | -$12,000 |
| Difference in work-related expenses (commute, lunch, etc.) | -$1,200 | -$12,500 | -$20,000 |
| Additional investments (NQ plan, brokerage account, rental property, etc.) | $0 | -$25,000* | -$100,000* |
| Pre-retirement income needed | $33,740 or 84% | $164,989 or 66% | $224,461 or 56% |
For illustrative purposes only. These are assumptions and not intended to reflect actual income, tax savings or annual spending requirements. Social Security and Medicare tax rates assume single filer status for 2026.
*This figure represents a hypothetical level of non-qualified saving and investing used to demonstrate how retirement income needs can vary by income level.
These examples illustrate how retirement income targets can vary widely in practice, underscoring the need for an approach centered on each participant’s situation.
Defining an individual income target helps clarify what participants may be working toward, yet many still struggle to translate that goal into saving and investment decisions. That gap often stems from limited financial confidence and access to advice—areas where participants frequently look to their employer or plan service provider for support. One way plans address this challenge at scale is through a managed account service.
64% of participants say they don’t receive professional financial advice
A managed account service helps participants navigate their unique circumstances by delivering personalized savings and investment recommendations over time. A managed account service can incorporate a broader range of participant data, such as salary, account balance, contribution rate, expected retirement timeline, and information about investments held by the participant outside the plan. As those inputs change, recommendations can be updated to remain aligned with the participant’s situation.
Within an individual-targeted outcomes framework, a managed account service seeks to structure the pursuit of that outcome—through tailored portfolio construction, ongoing monitoring, and periodic rebalancing aligned with information a participant includes and updates about their situation.
When participants have access to advice and personalized recommendations, three distinct benefits might develop:
- Investment confidence can increase. Participants with access to advice report higher expected confidence in key financial decisions.
Replacement factor of 80% is based on our industry experience and GAO Retirement Security Report to Congressional requestors. The estimated average total spending for post-retirement households was about 77 percent of the spending levels for pre-retirement households. GAO, 2013 CE Data; 16-242, Retirement Replacement Rates. - Savings behavior. Personalized advice also seeks to influence how much participants save over time. Among those enrolled in a managed account service, 74% increased their savings rate within a year.
Igniting Growth Through Innovation, Edelman Financial Engines, June 2024. - Progress toward retirement readiness. In addition to behavioral changes, nearly 94% of participants report feeling more confident they will achieve their retirement goals because of a managed account service.
Principal® Retirement Survey—Investment Insights, September 2025. All data is from this survey unless otherwise noted.
A managed account service is typically integrated as an available option for plan participants in ways that complement existing design features and fiduciary oversight.
| Approach | How it works | Key consideration |
|---|---|---|
| Opt-in managed account service | Participants who want additional guidance enroll voluntarily | Add advice without changing the plan’s default investment |
| Hybrid or dynamic qualified default investment alternative (QDIA) | Participants start in a default (like a TDF) and then, at a set age, transition into a managed account service designed to provide personalized portfolio construction | Keep simplicity with scalable personalization |
| Managed account service as the plan’s QDIA | Defaulted participants automatically enter the managed account, with opt-out available | When the needs of the workforce support providing personalization on a large scale |
The ultimate decision as to whether a managed account service or investment alternative is appropriate for a plan and whether it can serve as a QDIA belongs to the appropriate retirement plan fiduciaries.
Each approach reflects a different balance of simplicity, engagement, and personalization, while sponsors retain fiduciary responsibilities, including provider selection, fee review, and ongoing monitoring. From an individual‑targeted outcomes perspective, the goal of alignment can be obtained by selecting an approach that supports the plan’s intended outcomes and workforce needs.
As sponsors build on strong foundations of automated plan features and default investment alternatives, the next evolution in plan design can be less about adding complexity and more about helping to improve precision through services. An individual‑targeted outcomes approach can offer a clearer lens for understanding what participants are working toward, while a managed account service can provide a practical way to support ongoing action aligned with those goals.
Together, they move beyond simplified rules of thumb toward a more realistic, participant‑centered view of retirement readiness—one that reflects how people live, work, and prepare for the future.
For plans that already use automated plan features, the next opportunity may be to start measuring retirement readiness as participants experience it. Work with your financial professional or recordkeeper to assess the plan’s overall individual-targeted outcomes. A broader review of likely employee retirement outcomes can help identify where participants tend to fall across the workforce. These insights can then inform which managed account implementation approach may best align with the plan’s goals.
To learn more about how an individual-target outcomes approach and managed account service may support your plan goals, contact your Principal® representative.
