The racial retirement gap explained: Why millions of hardworking Americans may be unable to retire

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When it comes to retirement wealth, a massive gap persists between white and Black Americans, with roots that reach back generations, economists and investment advisers say.

“This gap in accumulated wealth stems from a legacy of social, economic, political and labor market discrimination that has played out across multiple generations in the Black community,” said Alhamisi Simms, portfolio manager at TIAA, a New York-based investment company that manages retirement plans for many teachers and others.

Federal Reserve data show that Black families tend to have significantly less — as much as 85% less — accumulated wealth than white families. Put another way, Simms said, the typical white family has eight times the wealth of the typical Black family.

This disparity can create a fraught financial environment for older Black Americans looking to retire or hoping to thrive during retirement.

What causes disparity?

Economists say three key elements account for much of the disparity: home equity, income and retirement plan participation.

“No serious researcher thinks that it’s something about Black people or households that is causing the racial disparities and wealth inequality,” said Teresa Ghilarducci, a professor of economics and policy analysis at the New School for Social Research in New York.

“In terms of home equity, good scholarship shows that federal government policies on lending and redlining and illegal actions that destroyed land titles were factors, along with outright discrimination and violence that prevented [people of color] from acquiring land,” she added.

The Color of Law,” Richard Rothstein’s groundbreaking 2017 history of how government discrimination shaped the modern U.S. metropolis, traces the history of segregation (and the resultant lower property values for Black Americans) in neighborhoods nationwide.

“This wonderful, important book…shows how federal, state and local government housing policies made the United States two societies, separate and unequal, and used public power to impose unfair, profoundly damaging injuries on African-Americans,” Florence Roisman, a law professor at Indiana University, wrote about “The Color of Law.”

In August 2020, the New York Times cited a 2018 report by researchers from Gallup and the Brookings Institution about the widespread underappraisals of Black-owned property in the U.S. The report found that a home in a “majority Black” neighborhood was likely to be valued at 23% less than a nearly identical home in a mostly white neighborhood; it also determined that this devaluation cost Black homeowners $156 billion in cumulative losses.

For a variety of systemic reasons, Black people also tend to make less money than white people. And they face steeper odds when it comes to promotions.

Learn more: The racial, ethnic and gender retirement gaps: How do we close them?

You can’t save what you don’t have

“Black people have less wealth because they have less income,” said Geoffrey Sanzenbacher, associate professor of economics at Boston College and a research fellow at the college’s Center for Retirement Research. “That’s a function still of discrimination and differences in education and opportunity.”

In any given year, Sanzenbacher said, the median Black household’s income is just 55% of what the typical white household makes.

“You can only save if you have income,” he said. “The more income you have, the more you save.”

The situation looks even more dire for Black people when one considers overall wealth. (Wealth is the value of assets owned minus the debts owed.) There again, Black people are at a huge disadvantage, and housing is, once again, a factor.

“Wealth is the accumulation of capital over time,” Sanzenbacher said. “Home. Retirement accounts. Checking and savings. And that amount is much more unequal, with Black households having probably 15% to 20% of the wealth of white households.”

Then there is the issue of participation in retirement plans.

T. Rowe Price, a Baltimore-based investment firm, tracks retirement trends using U.S. Census and other data.

For retirement, “one of the key elements, perhaps the single most important factor, is participation rates,” said Sudipto Banerjee, the firm’s director of retirement thought leadership. “As you would expect, there are some really large gaps in participation.”

See: Telling low-income families to budget better won’t close the racial wealth gap, Boston Fed researcher says

Employer size matters

“We looked at the salaried private sector. In general, that is not a very positive story for any group, with an overall participation rate of 50%. That in itself is not a very good story. If you go one layer beneath that, whites and Asians are the only two groups that have above-average participation rates,” said Banerjee.

Latino workers sit at the bottom, he said, with about 32% participating in a retirement savings plan. About 40% of Black people participate.

One explanation, Banerjee said, is employer size. Although Black and Latino people are concentrated in lower-income groups, Latinos tend to work for small firms that are less likely to offer a retirement plan. Almost half of Black people, however, work for large companies. Although they might have access to a plan, Black peoples’ lower incomes might suppress their participation.

See: Small businesses are struggling to help workers save for retirement

and: Small businesses are ‘paying double’ for 401(k) plans

For decades, the Ariel Schwab Black Investor Survey has shown that 401(k) plans have been the entry point to investing for many Black Americans.

“While our survey showed that the defined-contribution plan participation gap between Black and white investors nearly closed in 2022, participation rates stagnated and were still well below 2015 numbers,” said Arielle Patrick, the chief communications officer of Chicago-based Ariel Investments, one of the nation’s largest Black-owned asset management firms.

“While there were some signs of hope in 2022, with Black Americans saving and investing more than in 2020,” Patrick added, “white Americans were still saving and investing significantly more. This saving and investing gap means Black Americans will have less money saved for retirement and less wealth to pass on to the next generation than their white peers.”

Also see: California task force approves sweeping reparations potentially worth billions of dollars

Seeking a solution

When it comes to addressing the retirement gap, Ariel and other financial institutions are spotting an opportunity in advising Black Americans about investment and savings.

About a year ago, TIAA began a campaign called “Retire Inequality.” It is intended in part to address the “retirement crisis” in America that leaves 54% of Black Americans without enough savings to retire.

“This campaign speaks to our effort to shed light on these inequities,” said Simms, the portfolio manager. “We’re trying to plant the seed in everyone’s mind. We want to have a conversation.”

“A large portion of all Americans won’t have enough in retirement,” Simms added. “You pull back the layers and find that the problem is even more pronounced for some minorities. Our focus has been: What can we do as an organization to help people save?”

New law raises hopes

Simms said TIAA has been encouraged by the passage of Secure 2.0, a new federal law that many observers see as one of the most significant pieces of retirement legislation in years. Secure 2.0 aims to help workers of all ages by expanding retirement plan coverage, increasing plan savings and simplifying and clarifying rules. A key element: Starting Jan. 1, 2024, most new 401(k) and 403(b) plans established after the effective date must include automatic enrollment.

Other changes include increases in the age at which retirees must begin taking required minimum distributions from IRA and 401(k) accounts and increases in the amounts of “catch-up contributions” for older workers with workplace retirement plans.

“The legislation,” Simms said, “touches on many groups in a positive way.”

Martha Groves was a staff member of the Los Angeles Times for 34 years, during which she was a business editor, business writer and metro reporter. A native Hoosier, she previously worked for the Philadelphia Inquirer and the late, lamented Chicago Daily News. Her freelance writing and editing business is Martha Groves Writing & More

This article is reprinted by permission from, ©2023 Twin Cities Public Television, Inc. All rights reserved.

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