People of color face “severe” challenges in preparing for retirement, with about two-thirds of black and Latino working-age households owning no assets in retirement accounts, according to a new study.
“Regardless of race, the typical working-age American household is far off-track toward accumulating sufficient savings to meet basic needs in retirement,” said Nari Rhee, research manager at the nonprofit National Institute on Retirement Security (NIRS), which published the study. “As we dig deeper into the data, we find an even worse situation for blacks, Latinos and Asians.”
The December 2013 study, Race and Retirement Insecurity in the United States, found that of black and Latino working-age households, 62 percent and 69 percent, respectively, do not own assets in a retirement account, compared with 37 percent of white households.
The study was published in PlanSponsor magazine, which covers retirement benefits and planning for readers in the U.S. and U.K. The research is based on an analysis of data from the Bureau of Labor Statistics and the Federal Reserve.
Lack of Opportunity
Part of the reason for the difference, Rhee said, is that many people of color—especially relatively new immigrants—lack the education and English proficiency that can lead to well-paying jobs and, hence, the ability to save for retirement.
In addition, minorities are more likely to work for businesses that don’t provide retirement plans. Only 54 percent of black and Asian employees and 38 percent of Latinos ages 25 to 64 work for an employer that sponsors a retirement plan, compared with 62 percent of white employees.
The racial disparities are much more pronounced in the private sector than in the public sector, the report found. Blacks, Asians and Latinos are, respectively, 15 percent, 13 percent and 42 percent less likely than whites to have access to a job-based retirement plan in the private sector; these figures drop to 10 percent, 9 percent and 12 percent in the public sector.
“Latinos really take a double hit,” Rhee said. “On the one hand, they’re underrepresented in public-sector and private-sector jobs and more concentrated than other racial groups in low-wage jobs. For instance, I like to bring up construction. If you look at this industry, Latinos lag way behind white workers in terms of health and retirement benefits, and that’s because whites in construction are more likely to be in commercial construction with larger firms that offer better benefits, while Latinos may be doing similar work but more in the residential sector with smaller firms.”
Little Left to Save
Even people of color who have access to retirement accounts tend to have far too little saved, leaving them vulnerable as they age to relying only on Social Security and public assistance to make ends meet.
A typical white household nearing retirement has almost $30,000 saved in retirement accounts, the study found. A typical black or Latino household close to retirement has no dedicated retirement savings in a 401(k) or IRA. For working-age households, the average retirement savings is only about $20,000 among blacks and $18,000 among Latinos—a fraction of the $112,000 average savings among white households.
“How much you make is really the greatest determinant of whether or not people save and how much people save,” Rhee noted.
Cultural Approaches to Wealth
Some of the differences in retirement savings, she said, can be attributed to racial groups’ approaches to finances and wealth.
“Among Latinos, it’s hard to figure out what they plan to do when they retire,” she said. “It’s a little nebulous whether they plan to stay here or go back to their home country.
“Where Latinos and blacks tend to focus when trying to accumulate wealth is on home ownerships and home equity,” she added. “It’s been a problem because they were the hardest hit by the housing crisis and the devaluation of homes that happened in 2008, which happened a lot in communities where blacks and Latinos were concentrated.”
Past research also indicates that blacks and Latinos are uncomfortable dealing with stocks and bonds and are less likely than whites to be financially literate, she said.
Dana Wilkie is an online editor/manager for SHRM.