African-Americans Face Retirement Savings Barriers

Lower plan participation rates, and a greater liklihood of borrowing from plan assets

By Stephen Miller Apr 15, 2011

Only two in 10 African-Americans believe that they are on track to meet their planning and savings goals for retirement vs. 34 percent of the general population. And nearly four in 10 (39 percent) say they are way behind or haven't even started saving for retirement, according to The African American Financial Experience, a study by Prudential Financial Inc.

Moreover, a majority of surveyed African-Americans (60 percent) have less than $50,000 in company retirement plans, and just 23 percent have more than $100,000 (vs. 34 percent of the general population).

African-Americans tend to hold fewer financial products, invest more conservatively, lack relationships with financial professionals and borrow from company retirement plans—all of which are barriers to achieving their financial goals, the study found.

“Understanding the financial needs of the African-American community is essential to build trust and productive relationships,” said Charles Lowrey, chief operating officer at Prudential's U.S. Businesses.

Lower 401(k) Plan Participation

While most Americans expect company-sponsored retirement plans to be their primary source of retirement income, African-Americans are slightly less likely than the general population to put money into these plans on a regular basis (83 percent vs. 87 percent of the general population). And African-Americans are three times more likely to tap into their 401(k) or similar plans to meet immediate financial needs.

While 82 percent of African-Americans say maintaining their lifestyle in retirement is critical, only one-third feel confident that they will be able to accomplish this. In addition, 83 percent place critical importance on not becoming a financial burden on loved ones, but just one in 10 is confident of being able to achieve that goal.

“African-Americans are looking to their employers for information, advice and tools to help bolster their savings and better plan for their financial goals,” said Sharon C. Taylor, senior vice president of HR at Prudential. “Clearly, companies need to do more if they are going to help African-Americans achieve financial security, both as individuals and in the workplace.”

Financial Planning and Investment Advice

Based on their current investable assets, many African-Americans do not properly plan for the amount of money that will be needed in retirement for health care, inflation and support of other family members. They expect to rely on workplace plans as their primary source of retirement income, despite their lower participation rates in these plans compared with the general population.

Moreover, African-Americans are less likely than the general population to have a detailed financial plan for meeting a number of their critical goals. However, those with a detailed plan expressed much greater confidence than those without a plan that they could achieve their retirement and family protection goals.

Nearly four in 10 African-Americans indicated their biggest financial hurdle is lack of disposable income vs. 35 percent of the general population. Among African-Americans, there is a high degree of awareness that household debt is a barrier to financial planning.

African-Americans who use advisors tend to be older and more affluent than African American decision makers overall. They are also more likely to be married, to be homeowners and to have attained advanced degrees. Among those who use an advisor, financial product ownership and detailed financial planning increase, and confidence in meeting key financial goals typically doubles. Additionally, those who use an advisor are significantly more likely than non-users to have a detailed plan to meet all of their financial goals.

Additional Findings

Among other study highlights:

•African-Americans say that their most important future financial needs include building wealth portfolios and retirement nest eggs as well as transferring wealth to their heirs.

•Almost half of African-Americans (46 percent) admit that they need help in some specific financial areaswhen making financial decisions, and one-fifth need assistance in many areas.

•African-American decision-makers tend to be independent learners when it comes to finances, relying on books, financial websites, financial seminars and conferences and their employers for information. They show a high interest in learning about financial issues through faith-based organizations.

•African-American women are driving financial decisions in their households.

•​Of the African-American women surveyed, 72 percent indicated that they are the primary financial decision-makers in their households vs. 54 percent of women in the general population.

The African American Financial Experience survey was conducted in November 2010 as part of a series of research projects focused on multicultural markets. It polled 1,500 African-American financial decision-makers between the ages of 25 and 70 with incomes above $25,000 and 500 general population financial decision-makers as a benchmark.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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