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U.S. retirement crisis has ‘racial component’

JAZELLE HUNT | 1/20/2014, 11:15 a.m.
File Photo Associated Press

WASHINGTON (NNPA) – More than three-fifths of Black working-age households – 62 percent – have no assets in a retirement account, according to a new study by the National Institute of Retirement Security.

Even those Black households with assets trail similarly situated Whites. Among the 38.3 percent of Black households age 55 to 64 who do own accounts, the average savings is $34,365. That’s a fraction of the $206,400 saved by their White counterparts.

The report, “Race and Retirement Security in the United States,” is a companion to a broader study of the retirement gap using data from the Bureau of Labor Statistics and the Federal Reserve. In it, researchers examine workplace retirement coverage, retirement account ownership, and retirement account balances among Whites, Blacks, Latinos and Asians.

“I think what the research shows is that the U.S. retirement crisis has really specific racial dimensions, specifically with access and savings,” said Nari Rhee, manager of research at NIRS and the report’s author.

In the report, Rhee describes the savings gap as “stark,” with the typical retirement account-owning household of color with a balance of $23,000, which is less than half the $50,500 median balance of White households with retirement accounts.

In addition to the gap in savings, a gap in access to retirement options persists, particularly for private-sector workers. In its larger retirement study, the NIRS found that private sector retirement access is near its lowest point since 1979. As of 2010, a little more than half of all Black workers have access to employer-sponsored retirement coverage (54.3 percent), and less than half of them actually take advantage of said plans (43 percent).

There are several causes for the lack of access to retirement plans among Black households. For starters, employers are not legally required to provide benefits or financial literacy courses to their employees.

Rhee pointed out that in other developed nations, employment-based retiree provisions tend to be effective because of an automatic or mandatory component. Additionally, the types of jobs that offer such benefits are in national decline, while lower-wage jobs with fewer benefits are proliferating. Those that do offer retirement benefits are switching from defined benefit pensions, which are automatic retirement savings, to 401(k), IRA and other opt-in accounts, which employees decide.

Lazetta Rainey Braxton, incoming president of the Association of African American Financial Advisors, sums it up this way: “Access to retirement plans is very tied to industry, level of education, income level … people of color are still catching up to these opportunities.”

The retirement gap is also intrinsically tied to the wealth gap. Both Braxton and Rhee point out that there are societal and historical factors at play. Although African Americans are well represented in the public-sector ranks where DB pensions are still the norm, lagging generational wealth curtails this boost.

“A lot of retirement investment success comes from word of mouth, from transfers, from legacies. Our history doesn’t go back as far with retirement investments, as opposed to just saving what we do have,” said Braxton, who is also the CEO and founder of the planning and investment firm Financial Fountains. “But if you put what you have in retirement for the future, does that leave you with enough for the right now?”