Key insights from: “Racial Inequities and Retirement Income: Contributing Factors and Possible Solutions”

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A recent article by Lori Lucas for the Alliance for Lifetime Income’s Retirement Income Institute explored the racial disparities that contribute to differences in retirement preparedness by race and ethnicity, the impact of those disparities on retirement outcomes, and private sector solutions that might effectively address these disparities. Key insights from the article are included below. A link to the full article is available at the end of this article.

DEBT AS A CONTRIBUTING FACTOR TO RACIAL DISPARITIES IN RETIREMENT PREPAREDNESS

Disparities in debt exacerbate the differences by race and ethnicity when it comes to retirement preparedness. Black and Hispanic Americans were more likely to consider debt to be a major or minor problem for their household than were White Americans, across each income group. In the upper-income group, 62% of Black Americans and 58% of Hispanic Americans consider debt a problem compared with 37% of White Americans. Problematic debt levels were consistent across Black and Hispanic cohorts regardless of gender, marital status, and whether U.S. born.

Not surprisingly, given lower savings and more problematic debt, Black and Hispanic households are estimated to be more likely to run short of money in retirement than are White households, as shown by preliminary results from the Employee Benefit Research Institute (EBRI) Retirement Security Projection Model (RSPM), as yet unpublished. For households aged 35–39—in other words, those with much of their career left to save for retirement— the RSPM predicts that, in the current system, 34% of White households will run short of money in retirement, with an estimated deficit of $40,500 in today’s dollars. However, 48% of Black and Hispanic households in this age cohort are projected to run short of money, according to the preliminary results of the model—in excess of a third more than is true for White households. And their average estimated retirement savings shortfalls are estimated to be higher, too: $57,000 and $55,000, respectively, or about a third more than shortfalls of their White counterparts.

RETIREMENT INCOME SOURCES

Another finding of EBRI’s work on spending in retirement is the correlation between individuals with multiple sources of income—including guaranteed income—and retirement confidence and satisfaction. According to the Retirement Confidence Survey (EBRI and Greenwald Research 2021), 58% of Black workers and 61% of Hispanic workers expect a product that guarantees monthly income for life, such as an annuity, to be a source of income in retirement—compared with 46% of White workers.

MEETING RETIREMENT SAVINGS NEEDS OF A DIVERSE WORKFORCE

EBRI’s research has unearthed a number of potential areas to focus on to support Black and Hispanic workers who are preparing for retirement. One such area was providing increased access to financial professionals that share a connection or commonality with Black and Hispanic Americans, and that Black and Hispanic Americans will find trustworthy. 

The Retirement Confidence Survey (EBRI and Greenwald Research 2021) showed that Black Americans of all ages were equally likely to feel that they had been treated unfairly by financial service companies, whereas older Hispanic Americans were more likely to feel that they had been treated unfairly than were younger Hispanic Americans. Furthermore, Black and Hispanic Americans prefer some connection to those providing them financial advice, and so prefer either working with an advisor who has had a similar upbringing or experiences, is affiliated with their employer in some way, has a similar racial/ethnic background as them, or is the same gender as them. 

There are both systemic and behavioral barriers that Black or Hispanic workers and retirees face when it comes to saving for retirement. You can view the entire article that includes numerous charts that illustrate key findings below.

New Study from The Alliance for Lifetime Income

Racial Inequities and Retirement Income


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Annuities are long-term products designed for retirement. Early withdrawals may be subject to withdrawal charges. Partial withdrawals reduce the contract value and may also reduce certain benefits under the contract, such as the death benefit and the amount available upon full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply. An investment in a variable annuity involves investment risk, including the possible loss of principal. The contract, when redeemed, may be worth more or less than the total amount invested. Products and features may vary by state and may not be available in all states. The purchase of a variable annuity is not required for, and is not a term of, the provision of any banking service or activity.

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M-6108-F58 (01/2022)