Morningstar's recent analysis sheds light on the mounting retirement crisis in the US, with a substantial proportion of households facing the risk of inadequate finances during retirement. The shift from traditional defined-benefit pension plans, where employers funded retirement benefits, to defined-contribution plans has placed the onus on employees to save for their retirement, leaving many gaps in financial preparedness.
The study points out that older generations like Baby Boomers and Gen Xers are particularly vulnerable to experiencing shortfalls in retirement savings compared to Millennials and Gen Z due to having less time to accumulate funds under the new retirement paradigm. Additionally, the analysis underscores that individual retirement preparedness is closely linked to the savings opportunities and risks that vary significantly based on employers' offerings.
One of the key findings of the Morningstar analysis is that participating in workplace savings plans, such as a 401(k), consistently over two decades or more greatly enhances one's chances of having sufficient savings and Social Security benefits for retirement expenses. However, the study highlights a concerning statistic that nearly half of US workers do not have access to such plans, while some who do have access choose not to participate, increasing their likelihood of facing financial shortfalls in retirement.
Furthermore, the research indicates disparities in retirement security based on the type of employment, with public-sector employees having a lower risk of running short on income in retirement due to having defined-benefit pensions and access to defined-contribution plans. This contrast reveals the challenges faced by private-sector workers, especially those without access to employer-sponsored retirement plans, in securing their financial well-being post-retirement.