According to new research, almost half American households, about 45%, are expected to run out of money in retirement if they stop working at 65. This raises some serious red flags, especially as more people live longer and rely on their savings to fund retirement.
The study, conducted by the Morningstar Center for Retirement & Policy Studies, used a new simulation tool to evaluate retirement readiness. The tool factors in individual traits, health care expenses and life expectancy.
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Single women are at an even higher risk, with 55% likely to run out of money, compared to 41% of couples and 40% of single men.
Not all groups are equally affected. The study found that 61% of Hispanic Americans and 59% of non-Hispanic Black Americans face a high risk of financial shortfall, compared to about 40% of non-Hispanic white Americans.
One major reason is the lack of access to employer-sponsored retirement plans like 401(k)s. About 56% of American workers, totaling 69 million people, don't have access to any retirement plan through their employer, which puts them at a significant disadvantage.
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According to a Clever survey, two-thirds of retirees believe the country is in a retirement crisis and 40% worry about outliving their savings. Retired women are particularly vulnerable, with 28% having no savings compared to 20% of men. Many retired women also report having saved less due to lower earnings during their working years, leading to more financial insecurity in retirement.
Retirement timing also plays a crucial role. Retiring earlier increases the risk of running out of money. If Americans retire at 62, the earliest they can claim Social Security, about 54% could face a financial shortfall, whereas delaying retirement until 70 reduces the risk significantly to 28%. However, the average retirement age is 61.5, often due to unexpected layoffs, health issues or caregiving responsibilities, making it harder for many to build sufficient savings.
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Improving retirement security starts with making the most of employer-sponsored retirement plans, like 401(k)s. If you have access to one, contribute as much as possible, especially to get matching funds from your employer. And whatever you do, avoid dipping into it early. Early withdrawals can seriously disrupt your long-term savings.
There's also growing support for expanding access to pensions. In fact, 83% of Americans believe every worker should have a pension to ensure financial independence in retirement. People want more stability and pensions offer that kind of security that 401(k)s alone might not provide.
Beyond that, many Americans call for Congress to step up and address Social Security's future. Nearly all Americans agree it's crucial to shore up Social Security funding before it's too late. This isn't just some long-term worry either – people want action now to ensure the program remains solid for future generations.
The path to a secure retirement comes with plenty of challenges, but getting started early, staying consistent with contributions and delaying retirement are key steps toward financial stability.
Managing all the variables – from rising health care costs to inflation – can feel overwhelming. This is where speaking with a financial advisor can pay off. A professional can help breakdown complex decisions, like how to maximize Social Security benefits or what investment strategies might suit your goals.
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