{"id":22282,"date":"2024-08-08T22:12:51","date_gmt":"2024-08-08T22:12:51","guid":{"rendered":"https:\/\/www.thinkadvisor.com\/2024\/08\/08\/new-retirement-income-model-shows-which-workers-are-at-highest-risk\/"},"modified":"2024-08-08T22:12:51","modified_gmt":"2024-08-08T22:12:51","slug":"new-retirement-income-model-shows-which-workers-are-at-highest-risk","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2024\/08\/08\/new-retirement-income-model-shows-which-workers-are-at-highest-risk\/","title":{"rendered":"New Retirement Income Model Shows Which Workers Are at Highest Risk"},"content":{"rendered":"<div class=\"media_block\"><a href=\"https:\/\/feeds.feedblitz.com\/-\/902560277\/0\/thinkadvisor\/\"><img decoding=\"async\" src=\"https:\/\/images.thinkadvisor.com\/contrib\/content\/uploads\/sites\/415\/2024\/06\/06_Worried_Upset_Senior_Couple_Documents_Adobe_640x640.jpg\" class=\"media_thumbnail\"><\/a><\/div>\n<div><img decoding=\"async\" src=\"https:\/\/images.thinkadvisor.com\/contrib\/content\/uploads\/sites\/415\/2024\/06\/06_Worried_Upset_Senior_Couple_Documents_Adobe_640x640.jpg\" class=\"ff-og-image-inserted\"><\/div>\n<div class=\"the-advisor bullet-summary\">\n<h3>What You Need to Know<\/h3>\n<ul>\n<li>Research highlights challenges facing certain demographics, particularly single women and people of color. <\/li>\n<li>Baby boomers and Gen Xers are up against shorter accumulation periods in workplace retirement plan savings.<\/li>\n<li>Consistent participation in retirement plans helps all groups achieve greater readiness. <\/li>\n<\/ul>\n<\/div>\n<p id=\"first-para\">A detailed new retirement readiness model created by researchers at Morningstar confirms that defined contribution plan access provides a big boost to retirement readiness for a given individual, but the work also lays bare some major gaps in readiness among certain demographic groups.<\/p>\n<p>Specifically, lower-income workers are at a considerably higher risk of retirement insecurity \u2014 especially if <a href=\"https:\/\/www.thinkadvisor.com\/2023\/11\/07\/the-real-state-of-the-social-security-program\/\" target=\"_blank\" rel=\"noopener\">the funding woes of Social Security<\/a>&nbsp;aren\u2019t addressed \u2014 as are baby boomers and members of Generation X who face shorter accumulation periods in workplace retirement plan savings.<\/p>\n<p>The findings from the new \u201cstochastic decumulation module\u201d are <a href=\"https:\/\/www.morningstar.com\/business\/insights\/research\/retirement-crisis-401k\" target=\"_blank\" rel=\"noopener\">detailed in a white paper<\/a> put together by <a href=\"https:\/\/www.thinkadvisor.com\/2024\/05\/08\/fee-savings-from-dol-fiduciary-rule-could-top-55b-morningstar\/\" target=\"_blank\" rel=\"noopener\">Spencer Look<\/a>, an associate director of retirement studies, and Jack VanDerhei, director of retirement studies.<\/p>\n<p>Look and VanDerhei suggest that the new model offers an improved understanding of U.S. retirement readiness thanks to its explicit breakdown of many important post-retirement considerations, such as longevity risk, investment risk and the risk of catastrophically expensive long-term services and supports.<\/p>\n<p>Simpler models remain useful, the pair note, but they generally provide only limited visibility into the retirement readiness challenge by computing a replacement rate at retirement and then assuming that those above a certain threshold will have a successful retirement. The new model includes more realistic assessments of what can happen to people later in life.<\/p>\n<p>Race and ethnicity also play a key role, the model shows, with Hispanic and Black Americans being more likely to experience shortfalls leading up to and during retirement. This derives largely from income inequality that affects these groups throughout their savings journey.<\/p>\n<p>\u201cThis research highlights the vulnerability of certain demographics to retirement shortfalls and underscores the importance of defined-contribution plans in retirement preparedness,\u201d Look and VanDerhei argue. \u201cPolicies should encourage access to and participation in employer-sponsored retirement plans, especially for younger and lower-income workers.\u201d<\/p>\n<p>Here are seven findings from the researchers\u2019 modeling.<\/p>\n<h2>1. Older generations are at risk.<\/h2>\n<p>Even assuming that Social Security\u2019s funding issues are solved, the model shows that baby boomers and Gen Xers are more likely to experience retirement shortfalls than other generations in the workforce.<\/p>\n<p>\u201cWe focused our analysis on cases wherein the retirement-funded ratio was less than 1 (as these are, by definition, a shortfall),\u201d the pair writes. \u201cWe found that baby boomers and Gen Xers are more likely to run short of money than those in other generations.\u201d<\/p>\n<p>In particular, Look and VanDerhei found 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<p>The results for baby boomers and Gen X are in a large part already determined by their current level of savings, the pair explain, as members of these generations do not have that much time left to save for retirement.<\/p>\n<p>\u201cBaby boomers and Gen Xers may have lower levels of retirement savings because they were impacted by the transition from a DB-dominant system to a DC-dominant system,\u201d Look and VanDerhei write. \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<\/p>\n<p>Additionally, products such as target-date funds and managed accounts \u2014 as well as newer DC plan features, such as auto-enrollment and auto-escalation \u2014 are more recent developments that have helped later generations better use DC plans.<\/p>\n<h2>2. DC plan participants have better prospects.<\/h2>\n<p>The paper points to an ongoing debate about whether the United States faces a major retirement crisis. Look and VanDerhei say their model shows the answer is a qualified \u201cyes.\u201d<\/p>\n<p>\u201cThere is a retirement crisis \u2026 for those who do not or are unable to participate in a defined contribution plan,\u201d they write. \u201cWe found that retirement funding ratios were dramatically better for those who are simulated to participate in a DC plan for 10 or more years in the future.\u201d<\/p>\n<p>Specifically, Look and VanDerhei find that 57% of those not participating in a DC plan in the future may run short of money, compared with only 21% for those with 20 or more years of future participation in a DC plan.<\/p>\n<p>\u201cWhile participation is the most important factor in retirement adequacy, the industry should continue to move towards auto-portability, wherein an individual\u2019s account with a former employer\u2019s DC plan is automatically transferred to the individual\u2019s account with a new employer-sponsored plan,\u201d the pair writes.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What You Need to Know Research highlights challenges facing certain demographics, particularly single women and people of color. Baby boomers and Gen Xers are up against shorter accumulation periods in workplace retirement plan savings.&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":22283,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[1],"jetpack_featured_media_url":"https:\/\/blog.lifeinsurance-orleans.ca\/wp-content\/uploads\/2024\/08\/new-retirement-income-model-shows-which-workers-are-at-highest-risk.jpg","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/22282"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=22282"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/22282\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media\/22283"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=22282"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=22282"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=22282"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}