Studies Spotlight Racial, Ethnic Gaps in Retirement Savings

Black and Hispanic workers have significantly less access to employer-sponsored retirement plans than do white counterparts, exacerbating economic inequity and hampering the ability of people of color to build financial security later in life, according to researchers. 

Among private sector employees ages 18 to 64, more than 53 percent of African Americans and about 64 percent of Latinos do not have access to a workplace retirement plan, compared with about 42 percent for white workers and 45 percent for Asian Americans, a July 2022 report from the AARP Public Policy Institute found. 

The racial and ethnic disparities are “very dramatic,” says David John, an AARP senior strategic policy adviser and coauthor of the study on U.S. workers’ participation in retirement plans. 

The report encompasses both “defined benefit plans,” such as traditional, employer-funded pensions that offer guaranteed benefits, and “defined contribution plans” such as a 401(k) or a 403(b), in which tax-deferred employee contributions and, often, matching employer contributions are invested in stocks and bonds. Most retirees will need some form of retirement savings to supplement their Social Security benefits, the report notes.

Prior AARP research has found that Americans are 15 times more likely to save for retirement when they have a workplace plan and 20 times more likely to do so if contributions are automatic. Such options are especially important for people of color, who studies show depend disproportionally on Social Security for their retirement income and are less able to rely on family wealth transfers such as inheritances for financial support in later life.

Black and Hispanic workers “need to save more on their own for retirement to overcome this inequality in intergenerational wealth,” Dania Francis, an assistant professor of economics at the University of Massachusetts Boston, said at a recent panel on racial inequalities in retirement savings sponsored by the university’s Pension Action Center. “And yet we see that workers of color are often earning lower wages, making it harder for them to bridge that gap.”

Income gap increases retirement gap

Recent research has focused on defined contribution plans as they have become the dominant form of employer-sponsored savings — only 15 percent of private sector workers are covered by defined benefit plans, according to the U.S. Bureau of Labor Statistics. 

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