Retirement Crisis Worse for People of Color

December 10, 2013 ( – Every racial group faces a retirement crisis, but people of color face particularly severe challenges in preparing for retirement.

Only 54% of black and Asian employees and 38% of Latino employees ages 25 through 64 work for an employer that sponsors a retirement plan, compared with 62% of white employees, according to “Race and Retirement Insecurity in the United States,” a paper from the National Institute on Retirement Security (NIRS). A large majority of black and Latino working-age households—62% and 69%, respectively—do not own assets in a retirement account, compared with 37% of white households.

“I’m alarmed by the severity of the retirement racial divide,” says Nari Rhee, Ph.D., report author and NIRS manager of research. “It’s well-documented that, regardless of race, the typical working-age American household is far off-track toward accumulating sufficient savings to meet [its] basic needs in retirement. As we dig deeper into the data, we find an even worse situation for blacks, Latinos and Asians.

“To further illustrate the extent of the racial divide, a typical white household near retirement has nearly $30,000 saved in retirement accounts, clearly an insufficient amount. A typical black or Latino household near retirement fares even worse, with zero dedicated retirement savings in a 401(k) or IRA [individual retirement account]. For working-age households, the average retirement savings is only about $20,000 among blacks and $18,000 for Latinos—a small fraction of the $112,000 average among white households.”

She adds, “With little else to depend on besides Social Security when they retire, people of color are especially vulnerable to reliance on public assistance and [to] economic hardship in old age. Our research makes it clear that placing a special focus on improving the retirement readiness for Americans of color is absolutely essential to solve the national retirement crisis.”

The racial disparities are much more pronounced in the private sector than in the public sector, research for the report found. Blacks, Asians and Latinos are, respectively, 15%, 13% and 42% less likely than whites to have access to a job-based retirement plan in the private sector, compared with 10%, 9% and 12% less likely in the public sector.

During a webinar about the findings, Rhee noted that black, Asian and Latino workers are less likely to be employed in industries that offer retirement plans and are more likely to be in lower-wage jobs, which discourages participation in retirement plans.

Households of color lag behind white households in coverage by pensions that guarantee lifetime retirement income. While 24% of white households have a pension through a current job, only 16% of households of color do. This disparity is primarily due to the fact that just 12% of Latino households are covered by a pension plan—half the rate of white and black households.

Households with pensions through a current job are more likely to have dedicated retirement savings in a 401(k)- or IRA-type account than households without pensions: 74% vs. 66%, respectively, among white households, and 52% vs. 40% among households of color.

According to the report, the racial gap in retirement account ownership persists across age groups. Three out of four black households and four out of five Latino households ages 25 through 64 have less than $10,000 in retirement savings, compared with one out of two white households. Among those near retirement, the per-household average retirement savings balance among households of color ($30,000) is one-fourth that of white households ($120,000).

Across age groups, households of color with at least one earner are half as likely as white households to have retirement savings equal to or greater than their annual income. For instance, only 19% of households of color near retirement have this much retirement savings, compared with 41% of white households of the same age.

During the webinar, Diane Oakley, executive director, NIRS, said these findings show the importance of strengthening Social Security and putting that on a sound basis so it remains a viable safety net for retirees. She also contended that lawmakers could expand the saver’s credit at a pretty modest cost to cover more lower-income people. Finally, NIRS recommends that regulators look into ways to expand access to retirement plans.

The report serves as a companion to NIRS’ July study, “The Retirement Savings Crisis: Is It Worse Than We Think?,” which documents a significant retirement savings gap among working-age households in the U.S. (see “NIRS: The Retirement Crisis Is Worse Than We Think”). The research is based on an analysis of data from the Bureau of Labor Statistics and the Federal Reserve.

“Race and Retirement Insecurity in the United States” is available here.