Morningstar Retirement Launches New Morningstar Model of US Retirement Outcomes
Using the model,
“The model paints a clear picture: Participating in an employer-sponsored defined-contribution plan significantly lowers the risk of retirement shortfalls,” said
The research report, “Beyond the Retirement Crisis Headlines: Why Employer-Sponsored Plans Are the Key to Retirement Adequacy for Today's Workers,” suggests that certain demographics may be more likely to run short of money in retirement due to variables such as their current retirement savings, levels of financial resources, existing disparities in retirement account balances, and whether they participate in a defined-contribution plan. Takeaways from the report include:
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When comparing retirement funding ratios for Gen Z, millennials, and Gen X households in
the United States , the research finds 57% of those who do not participate in a defined-contribution plan in the future may not be able to sustain projected retirement expenses, compared with 21% for those with at least 20 years of future participation. The career-long 401(k) participants who are at risk likely cash out their balances upon a job change or deplete their accounts via pre-retirement withdrawals. -
Across the
U.S. , the model predicts approximately 45% of American households will run short of money in retirement. Moreover, about 55% of single females may be at risk in retirement, compared with 41% of couples and 40% of single males. - A socioeconomic disparity exists: 61% of Hispanic Americans and 59% of non-Hispanic Black Americans are projected to run short of money, compared with approximately 40% for both non-Hispanic other Americans and non-Hispanic white Americans.
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Nearly 54% of
U.S. households could experience retirement shortfalls if they retire at 62 years old, compared with 45% if retiring at 65. This can be improved by waiting until age 67 (38%) or age 70 (28%). - Looking across generations, baby boomers and Gen X have a higher risk of experiencing retirement shortfalls (52% and 47%, respectively) compared with millennials (44%) and Gen Z (37%). The shift from defined-benefit pensions to defined-contribution plans left baby boomers and Gen X with less time to accumulate savings. Younger generations, moreover, benefit from more recent features like automatic enrollment, managed accounts, and target-date funds.
- The retirement industry should focus on providing more Americans with access to an employer-sponsored plan and improve participation rates for those who already have access. Plan sponsors should consider adding auto-enrollment and additional features to a plan, such as a student loan match or an emergency savings account, to boost participation.
The Morningstar Model of
The Morningstar Model of
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Source: Morningstar, Inc.