It’s no secret that American workers are facing a widening savings gap for their golden years, but the racial divide in retirement savings is also growing at an alarming rate.
A new report from the National Institute on Retirement Security (NIRS) shows black, Latino and Asian households face severe challenges when saving for retirement because they are less likely to be covered by an employer-sponsored plan and lack dedicated retirement saving accounts.
“Nearly two-thirds of households of color do not have any savings in a 401(k) or IRA-type account, compared to slightly over one-third of white households,” the report states.
What’s more, three out of four Asian, Latino or black households have retirement savings of less than $10,000. The report took into account workplace retirement access, retirement account ownership and balances in retirement savings accounts.
“As we look at the demographics, it’s clear these three groups are a growing part of our society and we need to make sure we are giving people the resources to meet their needs. Not only is it critical for their financial future, but also our economic growth as a country," says Diane Oakley, executive director of NIRS.
She points to the lack of employer-sponsored plans as a main contributor to the lack of retirement savings among these workers. The study shows 56% of black and Asian workers and 38% of Latino employees have no retirement plans from their job.
“For Latinos, we know that translates to eight out of 10 having less than $10,000 saved for retirement,” Oakley says. “The typical (household of color) has nothing saved for retirement, while the typical white household has $30,000 saved. We need to find ways to build access to the other populations.”
For near-retirement workers, the savings balance among households of color was $30,000, one-fourth of the average $120,000 at white households, according to the report.
Dallas Salisbury, president of the Employee Benefit Research Institute, says the report emphasizes the inequalities within the economy. “When you equalize for income, if you re-cut all the data and look at data in terms of individuals who are in the special populations but are equal in income, education and job tenure, than you find far smaller differences in their retirement readiness.”
He says the populations that are most-ill prepared for saving for retirement, regardless of race, are people with the lowest income and education and those with high job mobility. “It just so happens that here in the U.S. these particular demographic realms are much more heavily Asian, Hispanic and black.”
Salisbury adds that the study also underlines the extraordinary importance of Social Security and other safety net programs. “Social Security has become the main income source for too many Americans that it’s time we re-evaluate how to make it more helpful for lower-income Americans.”
David Shucavage, president of Carolina Estate Planners, says the first step to becoming better prepared for retirement is taking responsibility — whether it’s taking advantage of an employer-sponsored plan or setting up an individual account.
“If your work doesn’t have a contribution plan, put money into an IRA every year, go online, go to a bank or any major brokerage firm and set one up to take advantage of IRA limits. If you are self-employed, set up a simple IRA or SEP IRA where you can start saving for your future.”
While this sounds good in theory, Oakley says these workers don’t have the money to put toward savings.
“Blacks, Asians and in particular Latinos are less likely than whites to be employed in industries and occupations that provide high wages and workplace benefits,” the study says.