(Investopedia) - Only top earners, who hold the highest share of their wealth in investments, may be financially on track for retirement in the U.S., according to Vanguard research, underscoring how investing can be key to building wealth.
KEY TAKEAWAYS
- Only top earners may be financially on track for retirement, according to Vanguard, which found investing played a key role in their ability to grow wealth.
- Amid worries about a potential recession, more than half of Americans surveyed by Allianz say they are holding more money in cash rather than investing.
- Vanguard suggested greater participation in capital markets could help put workers in a better position to meet their retirement needs.
Comparing four cohorts of workers along an income distribution, Vanguard found only earners in the 95th percentile are projected to sustainably meet their spending needs. While having larger incomes played a significant role in their retirement readiness, Vanguard also noted higher-income workers were more likely to hold a bigger portion of their assets in stocks and bonds, as well as have access to and participate in employer-sponsored retirement plans with investment options to help them reach retirement savings goals.
"Long-term investing allows you to compound your wealth more effectively than savings," financial advisor and founder of Bone Fide Wealth Douglas Boneparth told Investopedia.
By contrast, workers in the bottom half of the income distribution were more likely to hold a greater share of their assets in cash, and amid rising economic uncertainty, more than half of Americans (54%) say they are keeping more money in cash due to worries about a potential recession, a recent Allianz survey found.2
"Stocks and bonds are riskier than cash in the short term, but these assets can also be expected, on average, to deliver higher returns," Vanguard noted, suggesting that greater participation in capital markets "could put them in a better position to meet their retirement needs."
However, Boneparth cautions "taking advantage of those opportunities can be difficult" if you don't have a cash reserve, which could be difficult to build for lower income households. "It depends on how prepared for uncertainty you are," he said.
By Naomi Buchanan | Investopedia
