As millions of Americans face the challenge of securing their retirement years, research from Morningstar suggests that simplicity could be the key to financial security in retirement.
A new analysis of U.S. retirement life from an investment research firm suggests that simpler planning could lead to a more secure future.
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According to the report, 79% of Americans who have continuously participated in a workplace retirement plan for at least 20 years are likely to have saved enough to cover retirement expenses. The report comes at a time of widespread economic uncertainty, with surveys estimating that 45% of U.S. households could face a financial shortfall in retirement.
“The model paints a clear picture,” says Spencer Look, associate director of retirement research at Morningstar. “Participating in an employer-sponsored defined-contribution plan significantly reduces the risk of being underfunded in retirement.”
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Workplace retirement plans are powerful tools thanks to features like automatic savings and, often, employer-funded contributions. Over time, these elements combine to take advantage of the effects of compound interest and grow your wealth.
But the study also found disparities in retirement preparation between groups, with single women, for example, at greater risk of financial instability in retirement compared to married couples and single men.
The survey also highlights disparities by race and socioeconomic background, with Hispanic and non-Hispanic black Americans more likely to face support shortfalls than white Americans.
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The outlook is especially bleak for people without access to a workplace retirement plan: The survey found that 57% of people without such a plan would struggle to meet their retirement needs, compared with 21% of those who have contributed to it for at least 20 years.
Delaying retirement may be a strategy for those worried about their financial future: Delaying retirement age from 65 to 70 reduces the risk of running out of money from 45% to 28%, according to a Morningstar model.
“For people, this can be a pretty dramatic change,” Look said. “Even working part time can be a helpful option if you don’t have enough savings.”
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According to CNBC, the findings come at a critical time in the American retirement landscape: As traditional pension plans continue to disappear, more responsibility shifts to individuals, leaving some generations, particularly baby boomers and Gen Xers, more vulnerable to underfunding in retirement.
The study’s implications go beyond individual savers: Morningstar researchers say expanding access to and increasing participation in workplace retirement plans should be a key goal for policymakers and employers.
It also suggests plan sponsors introduce features such as automatic enrollment, student loan matching and emergency savings accounts to encourage more engagement.
As the landscape of retirement continues to change, the earlier and more consistently Americans can save, the better their chances of achieving financial security.
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This article Morningstar Says 79% of Americans Who Follow This Strategy Avoid Being Underfunded in Retirement originally appeared on Benzinga.com
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