Retirement Readiness and Diversity
There's a Huge Race Gap in Retirement Readiness
With white households now holding nearly six times the wealth of African American or Hispanic households, this troubling gap persists into retirement.
Almost no one in the U.S. is on track for a secure retirement. In fact, the Center for Retirement Research (CRR) at Boston College found half of all households between the ages of 30 and 59 are at risk of having too little income in retirement. This is up from 44% in 2007, before the Great Recession.
As bad as that news is, the CRR data reveals something even worse: There's a huge gap in retirement readiness between whites and minority Americans -- especially Hispanics. This gap can largely be explained by earning differences, wealth disparities, and the aftermath of the U.S. housing bubble burst, which disproportionately impacted Hispanics.
Income and wealth disparities lead to racial gaps in retirement readiness
According to the CRR's report, 48% of Caucasian Americans currently between the ages of 30 to 59 will be unable to maintain their standard of living in retirement, based on projections of post-retirement income, compared to 54% of African Americans and 61% of Hispanics.
The gap between Caucasians and Hispanics has been widening since 2007, while the retirement readiness gap between Caucasians and African Americans has shrunk. Hispanics fell further behind, largely because the places where many Hispanic families purchased homes leading up to the financial crisis -- including Florida, Nevada, and Arizona -- experienced some of the biggest declines in housing value. Unfortunately, the other news is grim too: The gap in retirement readiness between Caucasians and African Americans has shrunk, in large part because earnings for low-income black households have fallen and reduced pre-retirement standards of living -- so less retirement income is required to maintain these reduced living standards. A diminishing quality of life because you're having to make do with less money is not cause for celebration.
The troubling disparity in retirement readiness between white Americans and minorities can be explained largely by income and wealth disparities that persist throughout our lives. Caucasians didn't lose as much wealth during the Great Recession and have recovered more of it, so white households now hold close to six times the wealth of African American or Hispanic households. Median earnings for white households recovered from the recession by 2016, but earning levels for both black and Hispanic households remained below 2007 levels. Caucasians now earn close to twice as much as minority households do.
When households earn less money, they have less extra cash to save for retirement, and they pay less into Social Security, which translates to higher benefit checks in retirement. When their homes are worth less, they have less wealth to sustain them through their senior years. So, it comes as no surprise that income and wealth disparities during working years translate into a much greater risk of financial insecurity in retirement.
American retirement expectations vary by ethnicity and culture
It seems that expectations about retirement are not the same for Americans of every background. In fact, they can vary widely depending upon ethnicity and culture.
When asked whether or not they had calculated how much they would need in order to retire, about half of the respondents to a recent survey said yes. But breaking the responses down by culture and ethnicity, differences emerged. On the high end, 61% of Asian Indians had performed the calculation, compared to 39% of Korean respondents, the fewest among the surveyed groups.
In terms of the retirement age they project for themselves, 30% of African Americans feel extremely confident. Of this group, 25% plan to retire at age 60 or before. 26% of Chinese respondents plan on 60 or earlier, too, but just 13% feel extremely confident about it.
How do respondents to the MassMutual State of the American Family survey expect to pay for retirement? 54% of them overall said they expect to receive a pension. By group, 63% of African Americans plan on receiving a pension, followed by 63% of Asian Indians, 59% of Hispanic people, and on the low end, 10% of people who are Chinese. Overall, 33% of respondents said they expect their 401(k), 403(b) or IRA to provide their biggest source of retirement income, with Social Security taking second place at 22%.
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