Quantifying the racial wealth gap in retirement financial security, why it exists, and possible solutions were the topics of a panel presentation, “Race, Retirement and Financial Security,” presented on June 23 by the Pension Action Center and cosponsored by the UMass Boston Black Faculty, Staff, and Students Association. Tyler Compton, a staff attorney for the Pension Action Center (PAC), moderated the presentation. PAC is affiliated with the Gerontology Institute in the McCormack Graduate School of Policy and Global Studies at UMass Boston.
“There’s an ongoing crisis of retirement financial security in this country which is disproportionately affecting people of color,” said Anna-Marie Tabor, director of the Pension Action Center, in welcoming attendees to the online event. She cited a recent study finding that 54 percent of Black Americans and 64 percent of Hispanic Americans are at risk of not having enough money to maintain their standard of living in retirement, and that workers of color are less likely to have access to employer sponsored retirement plans.
Shaun Taylor, a workplace financial consultant with Fidelity Investments, offered a quick refresher on employer sponsored plans such as 401(k)s. The shift in recent decades from company pension plans to employer sponsored retirement plans means that “96 percent of us are on our own to contribute to retirement plans,” he said.
A growing lack of access to employer sponsored retirement savings plans among low-income households parallels the recent growth in earnings volatility caused by irregular work schedules, spells of unemployment, and working for contingent pay such as tips, bonuses, and commissions, noted Dania Francis, assistant professor of economics at UMass Boston. Francis has published a number of recent studies on the racial retirement gap. She shared data on the racial disparities of intergenerational wealth transfers—most commonly gifts from parents or grandparents helping the younger generation with tuition payments and down payments on homes. From 2010 to 2019, white households near retirement age (55-64) had received $290,000, on average, in intergenerational gifts from their families, compared to $195,000 for Hispanic households and $100,000 for Black households.
“That’s a huge gap, which really shows one avenue by which wealth can transfer and affect disparities in retirement income,” Francis said. She pointed to the legacy of discrimination in housing and financial markets that “excluded households of color from wealth-generating investments in real estate, education, and business…keeping these households from reaping the same wealth-building benefits during some of America’s most expansionary economic periods.”
Parental wealth is key to why white employees are more likely to contribute to retirement accounts, and to contribute larger amounts, said Taha Choukhmane, assistant professor of finance at MIT Sloan School of Management. In a study comparing employees who had similar occupations, salaries, and education levels, he found that the parents of the white workers make, on average, $100,000, while the parents of employees of color make $50,000. “So the kind of support the employees get from their parents, the way they can withstand risks, the way they can deal with shocks, is very different,” Choukmane said.
One solution, he offered, is to change how retirement plans are configured. “What if instead of tying how much you get [from an employer] to how much you’re able to contribute, we made those match incentives different? What if [employers] gave it to all employees whether they contribute or not? We found that could have a pretty substantial effect in reducing wealth inequality in retirement.”
Mimi Turchinetz, assistant deputy director of the City of Boston’s Office of Financial Empowerment, offered perspective on how a city can respond to the challenges of financial insecurity among its low-income residents, most of whom have very small savings. For example, her office offers free tax return assistance and runs a workshop about saving for retirement. She is part of a national network that researches legacy planning for low-income families, and she also advocates for increasing the earned income tax credit, in Massachusetts and nationally, to refund a higher percentage of income tax to lower income households.
Policy wise, “there are things we can do, but we have to have the political will to do them,” Turchinetz said. Francis agreed, recommending advocacy for structural changes to address labor market discrimination, housing market discrimination, and healthcare inequities as additional ways to close the gap.