Morningstar Retirement Launches New Morningstar Model of US Retirement Outcomes
Using the model, Morningstar researchers found workers without future defined-contribution plan participation are over twice as likely to run short of money in retirement
“The model paints a clear picture: Participating in an employer-sponsored defined-contribution plan significantly lowers the risk of retirement shortfalls,” said Spencer Look, the report’s lead author and associate director of retirement studies for the Morningstar Center for Retirement & Policy Studies. “Our model not only sets a new standard in retirement research, but we’ll be able to identify actionable insights for policymakers and plan sponsors to improve product design, all with the goal of helping more Americans reach their retirement goals.”
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 finds57% of those who do not participate in a defined-contribution plan in the future may not be able to sustain projected retirement expenses, compared with21% 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 approximately45% of American households will run short of money in retirement. Moreover, about55% of single females may be at risk in retirement, compared with41% of couples and40% of single males. -
A socioeconomic disparity exists:
61% of Hispanic Americans and59% of non-Hispanic Black Americans are projected to run short of money, compared with approximately40% for both non-Hispanic other Americans and non-Hispanic white Americans. -
Nearly
54% ofU.S. households could experience retirement shortfalls if they retire at 62 years old, compared with45% 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% and47% , 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
About The Morningstar Center for Retirement & Policy Studies
The Morningstar Center for Retirement & Policy Studies has the mission to help improve the
About Morningstar Retirement
Morningstar Retirement empowers investor success by providing research- and technology-driven products and services that help individuals reach their retirement goals. With advisory services provided by Morningstar Investment Management LLC, Morningstar Retirement supports and collaborates with workplace retirement plans and other industry players to differentiate their services, stay competitive, and reach new markets, all in service of building a better retirement system. Morningstar Retirement not only helps people save for the retirement they want but helps them make their money last once they get there.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment insights in
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Source: Morningstar, Inc.
