Nearly half of U.S. households will run out of money in retirement, study shows

America’s cost of living crisis could quickly morph into a retirement crisis as more households struggle to make ends meet during their golden years.

According to research by Morningstar’s Center for Retirement & Policy Studies, 45% of U.S. households will run out of money in retirement.

Single women face the biggest risk, with 55% of them likely to run out of money when they stop working, compared to 41% of couples and 40% of single men.

Spencer Look, the director of retirement at Morningstar’s Center for Retirement & Policy Studies, said the biggest predictor of retirement success is 401(k) contributions.

“The model paints a clear picture: participating in an employer-sponsored defined-contribution plan significantly lowers the risk of retirement shortfalls,” Look told MarketWatch.

Although a record number of Americans are contributing to 401(k)s, creating a new class of 401(k) millionaires, not everyone has access to employer-sponsored plans.

According to the Economic Innovation Group, roughly 69 million workers, or 56% of America’s workforce, don’t have access to 401(k)s. These workers are at a significant disadvantage when it comes to saving for retirement.

Unfortunately, many Americans’ Social Security benefits are expected to fall well short of meeting their living expenses. This explains their overwhelming sense of dread when thinking about retirement.

Uncomfortable trade-offs

The rising cost of living since the pandemic has forced many households to make uncomfortable trade-offs between managing daily living expenses and saving for the future.

According to a Primerica survey, 46% of middle-class households said they reduced or paused their savings this year due to higher expenses. More than a quarter (27%) said they plan to contribute less money to their 401(k) this year.

A more recent CNBC survey found that 82% of American workers believe it’s harder to achieve a comfortable retirement today than it was for their parents.

These workers are having difficulty managing their expenses as the costs of housing, healthcare, insurance, and transportation continue to surge.

Even high-income earners “still feel they aren’t getting ahead because of how much healthcare costs and how much housing costs and everything,” Katherine Fox, a certified financial planner, told CNBC.

A lack of retirement savings could have profound implications for the U.S. economy, which is why BlackRock CEO Larry Fink said the country needs to “rethink retirement.”

“We focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” Fink said in a letter published earlier this year.

According to Fink, the problem isn’t just rising costs eroding Americans’ savings. The bigger problem is that building a secure retirement portfolio is “a much harder proposition than it was 30 years ago” due to increased market volatility.

More from Creditnews:

• Housing inventory ‘beginning to surge’ across U.S., expert warns
• U.S. credit card interest rates hit a new all-time high
• Only 2.5% of U.S. homes changed hands this year, Redfin says
• JPMorgan says the economy is on track for a soft landing
• 44% of Americans say credit card debt is biggest obstacle to wealth creation
• As cost of living crisis deepens, Democratic lawmakers go after ‘shrinkflation’