The Looming Retirement Crisis in the African-American Community

I don't lose sleep about a lot of things but when I think about the retirement crisis facing middle-and upper-income African-Americans, I become a certified insomniac.

After struggling so long to join the middle class and fulfill the American dream, millions of African-Americans are at risk of falling behind in their golden years. Ten years of research on the saving and investing habits of African-Americans and Whites who earn at least $50,000 annually show that median savings for Blacks is just $48,000 compared to $100,000 for Whites.

The ages of those surveyed were roughly the same (50 for Blacks and 52 for Whites) and they had comparable income levels ($75,000 for Blacks and $81,000 for Whites). When you do the math, factoring in monthly savings rates and a modest annual return of 8 percent, both groups will be far short of what they need to retire at 65 with anything close to their current income level, even with Social Security.

Research conducted by my company, Ariel Mutual Funds--which we commission in partnership with Charles Schwab Corporation--further shows that only 57 percent of Blacks own stocks or mutual funds compared to 76 percent of Whites. In short, large segments of the Black community are simply not participating in a serious way to build wealth to secure their retirement. Not only will my community face our own retirement crisis, but we will be a burden to our children, who in turn will forgo their own investing to support us -- and thus the cycle will be self-perpetuating.

The story gets gloomier when you consider the fact that only 20 percent of private sector jobs today offer traditional pensions -- down from 40 percent in 1980. Most private sector companies have switched to 401(k) plans which mean more and more people are now on their own when it comes to saving for retirement.

At the same time we are all living longer -- 17 years on average for those who retire at 65. And according to a study from Fidelity Investments, a typical couple faces an average of $215,000 in health care costs once retired.

The shift to 401(k) plans requires people to actively decide to become an investor, find advice, calculate retirement savings, make investments, save every month, and review their portfolio on a regular basis. Our research shows that while everyone is behind, Blacks are far less prepared for this new reality than Whites. Put another way, we have given people the keys to the car but we have not taught them how to drive.

Our research and our experience also suggest that employers are in the best position to help their employees understand their retirement and investing options and that a proactive corporation can dramatically boost participation levels in company-sponsored 401(k) plans. Ariel Founder and Chairman, John W. Rogers, Jr., serves on the board of McDonald's Corporation. He asked the company to analyze plan participation by race in their company-sponsored 401k plan. McDonald's learned that only half of their Black restaurant managers were participating and that the average amount saved was half that of White managers.

McDonald's launched a marketing campaign to enroll more Black managers, boosted the company match by one percent, gave the managers a small raise to reduce the impact on their take-home pay, and within three years, they had increased participation levels among Black managers to 95%, and increased overall savings by 42%.

We have asked other employee benefits providers and corporations to analyze participation by race and they are all finding the same thing: their Black employees save less per month, they are less likely to diversify their portfolio, they are less likely to roll over when they change jobs, and they are more likely to borrow against their 401(k) - all troubling habits that undermine their long-term financial security.

The lack of knowledge and exposure to investing among African-Americans represents an emerging national crisis that will add to the already growing financial burdens facing our society. These facts argue for a concerted national effort to promote financial literacy - in the Black community and in every community. It should be taught in every classroom, promoted in every workplace, and discussed at every dinner table.

With a national election underway and the promise of new leadership in the White House, now is the time for our national candidates to develop practical policy solutions to the emerging retirement crisis. The baby boomers are about to begin retiring in historic numbers. American is not ready.

Comments

[WorkingClass]

Whatever happened to: Live fast, die young and leave a beautiful memory?

[guero]

Mellody, what do we do if we have several more years of sideways Dow action? We've given back most of the gains made in the last several years...the fact is that 401K plans are in awful shape because most people haven't a clue how to manage them AND we are in a post-market boom phase. We are in Bear territory now.

Couple that with the fact that real income is sliding back, due to stagnant incomes, rising energy prices and other inflation...most people don't have a whole lot to set aside in the first place after the mortgage/rent/bills/car/miscellaneous is paid & you are starting to understand why the whole 401K retirement savings gambit is indeed grim.

[didereaux]

Yet, 80% turned traitor on the one person who would most likely do something to help them...Hillary Clinton. They chose to make race the criteria instead of common sense. So let them live with it.

[okeydokey]

Why don't we follow Oprah Winfrey's advice on this matter...that " laws of attraction " crap she espouses when she is not telling us how to vote.

[TXfemmom]

I have to agree that this is a problem across the board in America, and not just an African-American thing.

African Americans think Obama is the second return so perhaps Obama needs to come up with the solution, but that solution must include all groups in America, and not just African-Americans.

[zaka1]

I'm sorry but this is not just a racial issue, it pertains to many of us in America. Many single women still make only seventy cents to the dollar that a man makes. That has helped create this pending crisis. In my college graduating class, men got offers/salaries $10,000.00 a year over what women were getting with the same degrees.

The attitude that if you haven't saved then you've done something terrible wrong is also a misnomer . Everyone comes from different circumstances in their life, we don't all start out with exactly the same parents or amount of money or talent. Some people don't have to overcome a disability or difficult problems. That can take time and money to deal with as well.

Moreover, the rules in this country keep changing. Thirty years ago it would have been unheard (for some of us) of to have $100,000.00 saved, the average salary was $30,000.00 and it hasn't moved up all that much. Thirty years ago we didn't pay a lot for healthcare, phone, heat, gas, blah, blah, blah.

There are a lot of us that are concerned, and have been responsible. But if our country wants to keep squeezing every dime out of us don't be judgmental when I don't have the dime to give.

[WilliePilgrim]

Imagine a small cottage with a composting toilet adjacent to a large communal plot of land growing fresh vegetables and maybe some grass or alfapha for a small farm with animals. I see a future in returning as I retire to the very thing that represented the grinding poverty of the old days...and I'm actually looking forward to it.

[NCGigi]

Pay off your mortgage. Plant a garden. This is the way to a healthy and prosperous retirement. Healthy fresh food, and a secure living environs will do more for retirement than any 401k plan.

[realitytrumpsbull]

I seriously wonder about the solvency of SSI, for ANYbody, regardless of ethnicity. I think they about bet the farm on this war, and it's looking like even with all the war profiteering, they're going to come up snake-eyes. It's a global economic battle, now, and people that were lucky/smart/fortunate in their circumstances salted some away...some cities are already setting up tents, though...times are tough all over, caucasians, too...

[init]

We are going to find out that color is not alone. It fucks me up that people are not basing this on the true state of the falling dollar. The last I saw that was green.

[bigpaws23]

Are you kidding me? There's a TON of financial information out there! We have this thing called the internet and it doesn't discriminate. You can also call any financial instituion and they will mail you information for FREE. Americans as a whole do not save enough. If black are falling behind I think that one of the main reasons is this that the Great Society taught an entire generation (or more) that the government (menaing taxpayers) will always take care of you. So they took that cue and decided not to take responsibility for themeselves.

My guess is your solution involves taking more taxpayer money and rewarding those who have failed to save at the expense of those who have?

[oogabooga]

The wealthy liberal white people's social experiment with African-Americans is a gross and vulgar failure, and a relic from the 60s and 70s that we have to flush into the sewage plant where it belongs. The right wing fascist experiment of ignoring African-Americans also failed miserably. We have to take back our lives. Vote Obama.

[Wulfstan]

At least fifty per cent of Federal Tax income is spent on "Defense". The bulk of is wasted money going to profiteers.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its labourers, the genius of its scientists, and the hopes of its children.
General Dwight David Eisenhower : American statesman (34th US president: 1953-61), Supreme Allied Commander in WW II, Europe
Dwight Eisenhower (1890 - 1969)

[mick3]

The owner of a company who considers it a failure not to actively help his employees be financially sound is what this nations needs across the board. Before corporations, with their charter that requires them to rip off both workers and customers, private companies did a number of things differently: they made good products meant to last, they wanted satisfied rather than exploited customers, they were subject to the conscience of the owner and the opinions in the community. That is all over. Both Parties are "led" by corporatists to the core, except for Kucinich, poor man, and prefer a caste system society in which the very rich few exploit the lives of everyone else.

[Valleyviewer]

Thank you for your article. This crisis however will hit everyone. Single women have earned less than men and there are more single households in the US than ever before. I am saving and feel it won't be enough with SS, savings, etc. One would have to be debt free to retire and have enough savings to cover COL expenses. By the time many boomers in their early fifties reach their sixties, we'll be in a worse crisis. Oil shortages, elderly parents needing care, etc. The looming retirement crisis should be one of the highest priorities. instead of spending billions on defense, we need to work on stabilizing our internal domestic issues in this country.