African American retirement divided we fall

“We know there is racial inequality in terms of earnings, but still this notion that two-thirds of blacks (African Americans) and Latino have no retirement savings is fairly startling,” said Nari Rhee, research manager for Race and Retirement Insecurity in the United States a 2013 report published by the nonprofit National Institute on Retirement Security (NIRS). Among the key findings of the racial disparities in retirement readiness:

• Workers of color (Latinos especially) are much less likely than whites to be covered by employer-sponsored retirement plans.
• Three out of four black households age 25 to 64 have less than $10,000 in retirement savings.
• Among near-retirees, the average retirement savings balance among households of color ($30,000) is one-fourth that of white households ($120,000). “

To illustrate the extent of the problem, Rhee says a typical white household has approximately $30,000 in retirement accounts as workers reach retirement age, and another $112,000 in retirement savings. That is obviously not enough to provide for a comfortable retirement for one individual, let alone a couple. But consider the plight of the typical black or Latino household, which as they reach retirement age has $20,000 or $18,000 respectively in savings, and nothing set aside in a 401(k) or IRA.

Answers to African American Retirement Crisis?

According to research by Prudential¹ and ING², Blacks and Hispanics tend to be more conservative investors than whites, which can inhibit their returns. Other studies such as Ariel and Aon Hewitt’s 2007³ echo the bad news. It made the following recommendations:

1. Design 401(k) plans in a way that benefits a broad, diverse employee base.
2. Provide the necessary communication, education, and resources to help individuals make wise choices.
3. Encourage employers to voluntarily collect and report their 401(k) plan data by race and ethnicity of participants.
4. Modify loan requirements in 401(k) plans to decrease the likelihood of default when an employee terminates employment.
5. Provide financial education as a mandated component of both public and private school curricula at all levels, from kindergarten through secondary school.

Prudential’s 2013 survey noted a major barrier to maximizing defined contribution participation is the lack of education about how these plans work. Only 26% of African Americans believe that any financial services company has effectively engaged and shown support for the African American community, similar to Prudential’s 2011 research. African Americans are not only less likely to have a financial advisor (19% v. 30%), but also less likely to have ever been contacted by one (48% v. 55%). Across affluence groups, African Americans receive 13% less contact from financial advisors than members of the general population.

Prudential’s “The African American Financial Experience” results show that African Americans with a financial advisor demonstrate greater diversity in ownership of financial products. They are significantly more likely to participate in their employer-sponsored plan (89% v. 78%) and to have a savings account (88% v. 70%) and other financial products.

African American Retirement Education- Who cares?

My additions to Ariel and Aon Hewitt’s 2007 list:

• Deliver retirement advice through the workplace retirement plan. Financial Finesse has quantified the healthcare costs to productivity of people not retiring. Workplace advice can potentially’ be delivered at no direct cost to the employer.
• Retirement advice includes calculating how much needs to be saved, for how long and at what rate of return to reach the desired retirement paycheck. That will be lost for those losing pensions. These calculations are taught to those that study college Finance. To think that anyone that has graduated high school will do these calculations on their own may be overly optimistic.
• Education should be delivered at the workplace and at church where African Americans believe there are those they can trust. Prudential’s research showed a correlation between faith and finances.
• Access groups like the African American Financial Advisors Association that have members who can help. Financial firms cited in this blog have shown that they care enough to do the research. The answer is not one simply of numbers. Long held beliefs and cultural norms are involved.
• Please share my blog links. They are intended to demystify much of the financial services industry. My blogs will always be free

• The advice and education delivered to African Americans must be unbiased and independent of products being purchased. Advisors that are obligated to work in your interest such as a CFP®, investment advisor representative, etc. should be preferred.

If you are interested in working toward seeing that the results cited in 2007 do not repeat for another seven years please contact me at james.brewer@lpl.com.

(1) Prudential’s 2013, The African American Financial Experience

(2) ING Retirement Research Institute’s 2012, Retirement Revealed,

(3) 401(k) Plans in Living Color: A Study of 401(k) Disparities Across Racial and Ethnic Groups

(4) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

(5) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

(6) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IL, MI