How To Avoid a Retirement Shortfall
Estimated reading time: 3 minutes
Never Too Soon to Start
It’s never too soon to start saving for retirement — and there’s data to prove it.
Nearly half of Americans (45%) who stop working at age 65 are at risk of running out of funds in retirement, per a Morningstar (MORN) report. But the research also reveals a clear way to mitigate this risk.
Start Early, Retire Late
Retirement planning takes foresight and understanding that stashing money away in the moment will be beneficial later on. But this delayed gratification, as economists call it, isn’t the easiest to stomach when you’re a job starter or trying to save up for a big purchase, such as a home.
Even so, starting early may be the most effective strategy to build the requisite savings, as gains compound over time. Roughly eight in ten Americans (79%) who spend 20 years or more contributing to a defined contribution plan like a 401(k) will likely save enough to fully fund their retirement, per the report.
If you are unable to get an early start, it might help to postpone retirement by a few years, according to Morningstar. Less than a third of Americans (28%) who retire at age 70 risk a retirement shortfall, per the report.
401(k) Magic
Employers can help workers save for retirement by offering plans, such as the 401(k), which is a tax-efficient savings vehicle that allows the owner to invest the funds in the plan, for example into stocks or bonds.
What’s more, many employers offer to match worker contributions up to a certain percentage or amount of employee contributions, padding out these nest eggs even faster.
Taking advantage of workplace benefits like that can boost retirement savings significantly, especially when they’re being used from the start of a career onwards.
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