People of Color May Be Misinterpreting Their Retirement Readiness

Understanding the view of these different demographics can help plan sponsors with plan designs and targeted communications.

Americans who identify as people of color report that they have limited retirement investments and say they’re not making progress toward achieving important retirement goals, according to the 2020 Retirement Risk Readiness Study from Allianz Life Insurance Co. of North America.

Allianz says, despite this, people of color say they feel reasonably prepared for retirement, and that this disconnect potentially shows that they misinterpret their financial situation—putting their retirement readiness at risk.

Fifty-five percent of people of color say they believe they are saving enough in a retirement account, 52% think they have plenty of time to save for retirement and 35% say retirement is too far away to worry about it.

“The level of confidence people of color have in their retirement readiness could be attributed to different cultural values that shape their decisionmaking,” says Cecilia Stanton Adams, chief diversity and inclusion officer at Allianz Life. “Oftentimes, in communities of color, breadwinners are expected to balance support for multiple generations with their personal retirement goals. This complexity, among others, could be responsible for the disconnect we see between perception and reality, putting people of color at higher risk for retirement insecurity.”

Less than half of the respondents (48%) participate in a workplace retirement plan, 33% have life insurance, 21% have an individual retirement account (IRA) and 5% own a variable annuity.

Less than half report making progress toward achieving some of their retirement goals. Only 46% are making progress toward setting long-term financial goals, and just 40% have diversified their holdings. Twenty-five percent have purchased a financial product that provides a guaranteed source of retirement income.

“Given that a recent study from the Brookings Institution found the net worth of a typical white family is nearly 10 times greater than that of a Black family, it’s not surprising that our study shows that people of color may be behind in developing a sound retirement strategy,” Stanton Adams adds. “This highlights an opportunity for people of color to address their financial situation head-on, including working with a financial professional who can help them develop an achievable retirement plan.”

Only 32% of people of color are working with a financial professional. Meanwhile, nearly 70% plan to work in retirement.

Sixty-three percent say they have unexpected, large expenses to pay, and 52% worry about becoming a financial burden to their loved ones. Fifty-three percent are worried that they will not have enough money in retirement to do all the things they would like to do, and 48% are worried they will not be able to stay in their home.

“We believe that people of color want to take more control of their finances but may be struggling to find the right support from a financial professional,” says Aimee Lynn Johnson, vice president of financial planning strategies at Allianz Life. “This leaves room for financial professionals to better serve these communities through education, outreach and support in building retirement strategies than can mitigate some risk.”

Likewise, the MassMutual State of the American Family Study found that only 35% of Indian American families have a retirement plan in place. Korean Americans were the least likely to calculate how much they need to retire (39%) or to have created a clear path for retirement saving (20%), according to the study.

Only 30% of African Americans and 24% of Hispanic Americans said they are extremely confident in their expected retirement age

“It’s important to note that multicultural communities aren’t monolithic when it comes to retirement,” Wonhong Lee, head of MassMutual’s Multicultural Markets said. “Plan sponsors should be cognizant that the various multicultural communities look at retirement differently and have varying degrees of readiness and timetables for retirement.”

He added that education is key to encouraging more retirement planning behaviors among employees overall.

The National Institute on Retirement Security also published a report on the challenges facing Latino workers in the U.S. as they save and invest for retirement. Just under a third, 31%, of Latino workers participate in a retirement plan, compared with 53% of white workers.

“This could be due to the fact that many Latinos have not worked for their employer for one year, work part-time, or are under the age of 21—making them ineligible to participate in a retirement plan,” the paper said. “Among Latinos with access to a retirement plan, only 60.3% also meet the eligibility requirements set by employers, compared to higher retirement plan eligibility rates for all workers (72.9%), whites (76.1%) and all non-white workers (65%).”