Racial Divide in Retirement

Published on April 10, 2014

from the National Institute on Retirement Security, a non-profit organization that fosters a deep understanding of the value of retirement security, most people are not sufficiently prepared to retire. The report drills down into how prepared Americans are for retirement and looks at the disparities in retirement readiness among whites, people of color, and—where data permits—blacks, Latinos, and Asians. Here are some of the key findings:

• Workers of color, in particular Latinos, are significantly less likely than white workers to be covered by an employer-sponsored retirement plan—whether a 401(k) or pension.  In fact, 54% of black and Asian employees and 38% of Latino employees ages 25-64 work for an employer that sponsors a retirement plan vs. 62% of white employees. These disparities are more pronounced in private vs. public sector jobs.
• At the same time, defined benefit pension coverage appears to be positively associated with the existence of dedicated household retirement savings.
• Households of color are far less likely to have dedicated retirement savings than white households. In fact, 62% of black and 69% of Latino are less likely to have retirement savings compared to 35% of white households.
• Substantially lower retirement savings were noted in households of color vs. white households, even after controlling for age and income. Three out of four black households and four out of five Latino households ages 25-64 have less than $10,000 in retirement savings, compared to one out of two white households. And, as households near retirement age, the numbers are not better. The per-household average retirement savings balance among households of color ($30,000) is one-fourth that of white households ($120,000).
• In addition to the racial divide in retirement savings, the issue of health disparities among different populations in the US leads to higher health care costs. Racial and ethnic disparities in the prevalence of chronic diseases such as high blood pressure, diabetes, and Alzheimer’s disease result in higher out-of-pocket health care costs for these households. Indeed, the costs are staggering. The Joint Center for Political and Economic Studies estimated that the total direct and indirect costs of health inequities affecting racial and ethnic minority populations, including lost wages and productivity, exceeded $1.2 trillion.

Close the gap

What can you do to close the gap? Start saving now for your retirement—it’s never too early. And if you are comfortable making all your own investment decisions, consider a self-directed retirement account to build your retirement nest egg. Financially savvy investors use both traditional (stocks, bonds, mutual funds) and nontraditional investment options to develop a more diversified portfolio. Alternative assets that are allowed through self-direction include real estate, mortgages and other loans, private hedge funds, precious metals, limited partnerships, commercial paper and notes and more.

At Next Generation, an administrator of self-directed retirement plans, our professionals can answer questions about these plans and our transaction specialists ensure you are investing within IRS guidelines.

Give us a call at (888) 857-8058

or send an email to Info@NextGenerationTrust.com during business hours or read through our Starter Kits for more information. We do not give investment advice, so we strongly recommend you consult your trusted financial advisors about strategies to close the retirement gap through investment types you know and understand.