Most Americans are falling behind in saving for retirement. Here's how they can make up the difference.

By Jessica Hall

The savings shortfall comes as Social Security faces insolvency, people are living longer and inflation outpaces earnings gains

As many as 58% of Americans will fail to maintain their standard of living in retirement, Vanguard said.

The majority of Americans won't have enough money to retire and maintain their current lifestyle, forcing them to either cut their spending or work longer to make ends meet.

According to a new Vanguard report, only 42% of all Americans are expected to retire successfully at their current standard of living, with the remaining 58% expected to fall short. That would mean that the median-income individual earning $51,000 is expected to face an annual shortfall of $5,000, or 13% of their overall spending needs, Vanguard said.

"Although that number of 58% sounds scary, the shortfall is only about $5,000. It's a 13% shortfall. That makes it much more actionable. Yes, I may have some wood to chop, but I can do that. It's achievable," said Fiona Greig, Vanguard's global head of investor research and policy and a co-author of the report.

Longevity: A blessing and a curse

With a longer runway until they retire, members of Generation Z - those born between 1997 and 2012 - are projected to have an annual spending shortfall of only $3,000, representing 7% of their overall spending needs. Meanwhile, the median baby boomer - born between 1946 and 1964 - is projected to have an annual shortfall of $9,000, or 24% of overall spending needs.

"For many Gen Z workers, a spending reduction of 7% is likely manageable with careful budgeting, meaning retirement readiness may be within reach. For baby boomers, however, a 24% reduction may require a more significant adjustment," Vanguard said in the report.

The findings come as Social Security itself faces a funding shortfall. The trust fund that backs Social Security faces insolvency in 2033, at which point the fund would pay only 77% of scheduled benefits, according to the Social Security and Medicare boards of trustees.

Social Security's chief actuary, Karen Glenn, also issued a warning that the insolvency dates could be accelerated because of the Republican tax legislation known as the One Big Beautiful Bill Act, signed into law this summer, which includes a temporary enhanced tax deduction for older Americans.

Americans also are living longer, which can be a blessing but can also create a financial burden for some who might outlive their bank account.

"Healthcare costs and longevity are real. Longevity is a gift, but it's also a multiplier - the longer you live, the more every decision we make gets amplified. Bad mistakes over time can get multiplied," said Bryan Bibbo, president and chief financial officer of JL Smith Holistic Wealth Management.

'Where's the shame in working?'

There are ways to close the funding gap in terms of retirement savings. Workers with access to 401(k) plans through their employer - about 52% of workers as of 2022 - are twice as likely to reach their savings goals compared to those without access. If all workers had access to 401(k) plans, retirement readiness could increase by 19 percentage points, according to Vanguard.

Meanwhile, working until age 67 rather than 65 could add another 13 percentage points to readiness, Vanguard said. Of course, not everyone can keep working that long due to factors including physically demanding jobs, ageism, layoffs, caregiving responsibilities or their own health needs. But working longer means people can delay claiming Social Security in order to get a higher lifetime payout. They can also earn employment income for a longer period of time and have fewer years of retirement to fund.

"Maybe phase in your retirement. Bringing in $15,000, $20,000, $25,000 a year or two extra can move mountains. Go work at Home Depot or the local grocery store 20 hours a week. We need, as human beings, to put our egos aside and ask, 'where's the shame in working?'" Bibbo said. "Worry about your longevity to make sure you have enough money to get through your life."

Adding two more working years would help an additional 10% of workers across all generations retire successfully, Vanguard said. Gen Z and millennial workers would see their spending gap become a financial surplus, while Gen X and baby-boomer workers would see their projected spending gaps reduced significantly, the firm said. Millennials are those born between 1981 and 1996, while Gen X is the generation born between 1965 and 1980.

Delaying Social Security: The cheapest annuity

Each year a worker delays taking Social Security after their full retirement age increases their payout by 8%. Full retirement age is 67 for those born in 1960 or later, and payments max out at age 70.

"It's the cheapest annuity you can buy - to delay Social Security," Greig told MarketWatch. "It's a very, very powerful strategy."

Not everyone can afford to delay claiming Social Security, however, and many choose a lower income in order to meet immediate needs. Real wage growth has averaged only 0.35% a year from 1979 to 2022, while the cost of living, as measured by the consumer-price index, has risen by an average of 3.3% per year, Vanguard said.

"Delaying Social Security is the privilege of someone who has enough money in other accounts to bridge that gap. Not everyone can do that," said D'Andre Clayton, co-founder of Clayton Financial Solutions in Greensboro, N.C.

For baby boomers facing a retirement shortfall, using home equity is a possibility, Greig said.

As of 2022, baby boomers accounted for 21% of the U.S. population, yet they own 38% of the nation's homes, according to Freddie Mac.

Retirees can downsize to a smaller house, relocate to an area with a lower cost of living, sell their house and become renters, or take out a reverse mortgage. Selling a home and becoming a renter could improve baby boomers' overall retirement readiness by 20 percentage points, according to the Vanguard report.

"It's very hard to tell retirees to spend less. There's always going to be fixed costs - food, shelter, real-estate taxes. But it's not about slashing costs or cutting costs, it's more of a focus on discretionary trimming - travel, dining out," Bibbo said. "Of course, [in] the go-go years, people want to enjoy their money. But there's a need to focus on other things that are always going to be there - housing, healthcare, inflation and taxes."

-Jessica Hall

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10-16-25 1846ET