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An astounding 45% of American households are projected to run short on money in retirement, according to a new report. But the shortfall isn\u2019t uniform across households. In fact, younger generations may actually be better prepared for retirement than their parents.<\/p>\n
That\u2019s according to Morningstar\u2019s new Model of US Retirement Outcomes, a tool that assesses how financially prepared a worker is for their Golden Years. To demonstrate how it works, the Morningstar Center for Retirement & Policy Studies analyzed how likely it is<\/a> that different groups of workers in the U.S. today will have adequate financial resources in retirement.<\/p>\n There are some surprising and not so surprising results. On the not-so-surprising side of things, Morningstar found that those participating in an employer-sponsored defined-contribution (DC) plan\u2014like a 401(k)\u2014are much less likely to experience a savings shortfall in retirement than those without one. In fact, those using such a plan for their retirement savings had average account balances four times higher than those who do not.<\/p>\n As for the report\u2019s more unexpected finding, the biggest would be that younger generations appear to be in a better position than older ones, the research finds. Despite the pervasive storyline that millennials will never be able to afford to retire, Morningstar reports that 47% of Gen Xers and 52% of baby boomers may experience retirement shortfalls, compared with 37% for Gen Z and 44% for millennials.<\/p>\n That\u2019s primarily because young boomers and Gen Xers<\/a> were at the forefront of the shift away from pension plans and toward self-funded retirement savings. This means they have had less time<\/a>\u2014and started their careers with less access to quality investment information\u2014than younger generations to save up on their own.<\/p>\n Morningstar\u2019s research isn\u2019t the first to note this disparity<\/a>, and there are other changes in the retirement landscape that have helped younger generations save more. Target-date funds, managed accounts, auto-enrollment, and auto-escalation, for example, have only recently become more widely available.<\/p>\n \u201cEven within these two generations there are discrepancies, as baby boomers were more likely to experience the early portion of the transition, when the understanding of how to use a DC plan was not as developed as it is now,\u201d the report reads.<\/p>\n Need more proof that the shift to personal savings is hurting workers\u2019 retirement? The report also finds that employees in the public sector are actually the best prepared for retirement, with Morningstar projected around 29% of them will experience a shortfall. That\u2019s also the sector most likely to still offer employees a defined-benefit plan like a pension.<\/p>\n That said, Morningstar\u2019s research assumes that Social Security payments will not change\u2014something that isn\u2019t 100% guaranteed in the U.S.\u2019s current policy environment. As the report notes, the program creeps closer to insolvency <\/a>each year, which could greatly affect retirement outcomes for most generations.<\/p>\n Finally, the report also finds that lower income savers, Hispanic or Black Americans, and single women are much more likely to run out of money in retirement. Morningstar calls for a number of policy changes to help the situation, including providing more Americans with a workplace retirement (particularly to those who are lower income) and advocating for the Saver\u2019s Match, a provision of the 2022 SECURE Act 2.0<\/a> that should help low-income families.<\/p>\n<\/div>\nRecommended Newsletter:\u00a0<\/strong>The Fortune Next to Lead newsletter is a must-read for the next generation of C-suite leaders. Every Monday, the newsletter provides the strategies, resources, and expert insight needed to claim the most coveted positions in business. Subscribe now<\/a>.<\/div>\n