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

Morningstar Retirement, part of Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment insights, today announced the Morningstar Model of U.S. Retirement Outcomes — a simulation tool that considers individual characteristics, healthcare costs, and projected longevity to assess retirement income sufficiency. Through use of the model, the Morningstar Center for Retirement & Policy Studies published new research which examines potential retirement inadequacy among American workers.

“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:

  • 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.
  • 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 U.S. Retirement Outcomes

The Morningstar Model of U.S. Retirement Outcomes allows researchers at the Morningstar Center for Retirement & Policy Studies to study retirement readiness across the U.S. and help predict the effects of policy, product design, behavioral changes, and other variables on retirement preparedness. The Model includes stochastic modules for both accumulation and decumulation phases that can assess the prospects of future retirement income adequacy for today’s workforce. Future uses of the model will aim to further simulate retirement scenarios to inform debates on how best to enhance retirement outcomes for all. For more information and frequently asked questions, click here.

About The Morningstar Center for Retirement & Policy Studies

The Morningstar Center for Retirement & Policy Studies has the mission to help improve the U.S. retirement system by arming decision- and policy-makers with unbiased and actionable data and analysis. The Center draws on the capabilities of Morningstar Retirement and Morningstar Investment Management LLC to fuel its commitment to helping people reach better retirement outcomes.

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 North America, Europe, Australia, and Asia. The Company offers an extensive line of products and solutions that serve a wide range of market participants, including individual and institutional investors in public and private capital markets, financial advisors and wealth managers, asset managers, retirement plan providers and sponsors, and issuers of fixed-income securities. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $316 billion in AUMA as of June 30, 2024. The Company operates through wholly-owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on X (formerly known as Twitter) @MorningstarInc.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations about future events or future financial performance. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “consider,” “future,” “maintain,” “may,” “expect,” “potential,” “anticipate,” “believe,” “continue,” “will,” or the negative thereof, and similar expressions. These statements involve known and unknown risks and uncertainties that may cause the events we discuss not to occur or to differ significantly from what we expect. For us, these risks and uncertainties include, among other things, failing to innovate our product and service offerings or anticipate our clients’ changing needs. A complete description of these risks and uncertainties can be found in our filings with the Securities and Exchange Commission (SEC), including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. If any of these risks and uncertainties materialize, our actual future results and other future events may vary significantly from what we expect. We do not undertake to update our forward-looking statements as a result of new information or future events or otherwise, except as may be required by law. You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions in our future filings with the SEC on Forms 10-K, 10-Q and 8-K.

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Landon Hudson, +1 312 696-6037 or newsroom@morningstar.com

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