Retirement Inequality by Race and Ethnicity (2024)

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Workers have to accumulate substantial savings to supplement Social Security benefits. Yet, retirement inequality has grown over the past four decades (Munnell et al., 2021). The gap in retirement security between those who are more and those who are less likely to face a secure retirement has widened, in particular, by race and ethnicity. A large and growing number of African American, Latino, and many Asian American households have less wealth to supplement their Social Security benefits than white households, as a review by the authors shows (Francis & Weller, 2021b).

A large and growing number of African Americans, Latinos, and many Asian American households have less wealth to supplement their Social Security benefits than white households.

Multiple factors contribute to this growing inequality. First, people of color are less likely to inherit wealth from their families, and thus need to save more on their own to achieve the same level of retirement security as white families. White households have historically benefited from many advantages in wealth accumulation, including but not limited to slavery, Jim Crow laws, and current-day systemic racism. These wealth advantages are passed on intergenerationally through inheritances, large gifts, and access to larger and wealthier social networks, as a review by Weller et al. (2021) shows. People of color also often face discrimination in labor markets that lowers their odds of getting well-paying, stable jobs with decent health and retirement benefits (Ajilore, 2020; Gould & Wilson, 2020; Solomon & Weller, 2018). Additionally, households of color frequently face financial and housing market discrimination that leads to higher debt loads and lower housing asset valuation: key factors that affect retirement savings (Baradaran, 2019). Fourth, many people of color have to contend with higher costs for health care before and during retirement due to outright discrimination, health-care provider biases, and lack of access to providers (Maxwell, 2020). Finally, the systematic lack of wealth and access to stable, benefited jobs among communities of color often requires that family and friends help each other out financially, putting an additional strain on their limited collective wealth (Toney & Hamilton, 2020). In the end, many African American, Latino, and Asian American households and other households of color end up with less retirement security due to greater risks and costs during their careers and in retirement.

Retirement Income Inequality by Race and Ethnicity

Retirement income inequality and insecurity have increased since the early 1980s. For example, the share of people at risk of having to make substantial and painful spending cuts in retirement grew from 31% in 1983 to 49% in 2019 (Munnell et al., 2018a, 2021).

Households of color face greater retirement income insecurity than white households do. Less than half of white households (48%) were at risk of an insecure retirement in 2016, while this was the case for 54% of African American households and 61% of Latino households in 2016 (Munnell et al., 2018b)

Intergenerational Wealth Transfers

Racial retirement gaps follow in part from different rates of intergenerational wealth transfers, especially inheritances and large gifts, as the review of Weller et al. (2021) shows. Data from the Federal Reserve’s Survey of Consumer Finances show how large that gap can be. From 2010 to 2019, 42.2% of white households near retirement age—55 to 64 years old—had either already gotten an inheritance or large gift or expected to get one. In comparison, only 13.8% of black households, 11.5% of Latino households, and 20.1% of households of other and multiple races and ethnicities near retirement had received an inheritance or large gift or expected one from their family. And, when households had already received an inheritance, the amounts were, on average, smaller for black and Latino households than those for white households. Near-retiree white households got $289,850 as an inheritance on average. In comparison, black households on average received $100,127, Latino households got $195,021, and households of other and multiple races and ethnicities inherited an average of $295,120 (Figure 1).

One reason that households of color have less access to intergenerational wealth than white households is the legacy of racial discrimination in housing and financial markets that excluded them from wealth-generating investments in real estate, education, and businesses. That this exclusion happened as early as the postreconstruction era and continued through the civil rights era kept black households and other households of color from reaping the same wealth-building benefits of some of America’s most expansionary economic periods. Early access to capital and wealth put white households in a position to reinvest and grow their wealth and pass that wealth down to their descendants at higher rates and in greater amounts than households of color (Darity & Mullen, 2020; Katznelson, 2005).

Retirement Savings by Race and Ethnicity

People of color need to save more on their own for retirement to overcome this inequality in intergenerational wealth transfers. Yet, workers of color often earn lower wages than white workers, making it harder for them to save for retirement (Gould & Wilson, 2020; Mora & Davila, 2018; Solomon & Weller, 2018). Moreover, people typically save for retirement with defined contribution (DC) accounts, such as 401(k) accounts and Individual Retirement Accounts (IRAs), or they receive benefits from defined benefit (DB) pensions. While holdings in IRAs are larger than those in 401(k) accounts, the bulk of these balances stems from 401(k)s. Few people use IRAs to save for retirement (Chen & Munnell, 2017; Holden & Schrass, 2016). Workers of color are less likely to have either form of retirement benefit, and thus have much less retirement wealth.

Figure 2 shows the total retirement wealth for near-retirees—people not yet retired aged 55 to 64 years—from 2010 to 2019. This number includes all retirement account balances and the imputed wealth from DB pensions. The imputed DB pension wealth is the amount of wealth that people would need to have to generate the promised retirement benefits in the future. The average retirement wealth for white near-retirees amounted to $593,047 from 2010 to 2019 (Figure 2). In comparison, it amounted to $262,786 for black near-retirees, $193,908 for Latino near-retirees, and $418,799 for near-retirees of other and multiple races and ethnicities (Figure 2). The median amounts for those households that had any retirement wealth show similar gaps by race and ethnicity (Figure 2). Importantly, while 76.0% of white households near retirement had any retirement wealth, only 54.9% of black households, 42.4% of Latino households, and 62.1% of households of other or multiple races or ethnicities did. The data thus illustrate massive retirement inequality near retirement by race and ethnicity.

Varying degrees of access to employer-sponsored retirement savings are the first major factor underlying these wealth differences. In 2016, 54.9% of Hispanic workers had access to neither a DC account nor a DB pension at work (Pew Charitable Trusts, 2016). In comparison, 36.0% of black workers, 38.6% of Asian workers, 36.0% of workers of other races, and only 31.5% of white workers lacked such access.

Access alone does not guarantee retirement savings. People also need to decide to participate in a retirement plan at work. Yet, people of color are less likely to participate in a retirement plan at work, thus somewhat exacerbating the differences in access to such benefits. For instance, Copeland (2014) found that 81.2% of white workers participated in their retirement benefits at work, while 75.0% of black workers and 73.9% of Hispanic workers did. In part, people of color are less likely to be eligible for an employer-sponsored retirement benefit: for example, because they face greater employment instability and thus work for employers for shorter periods (Solomon & Weller, 2018; Weller, 2019).

Once workers decide to participate in a DC account, the most prevalent retirement benefit, they still need to choose their contribution amounts. African Americans and Latino workers often have lower contribution rates relative to their earnings than white workers do (Yoong et al., 2019). Those lower contribution rates reflect both lower earnings and greater earnings instability (Ghilarducci et al., 2018). People prepare for such shocks to their income with more emergency savings, leaving less money for retirement savings.

Following less access, less eligibility, and lower contributions, people of color are less likely to be covered by an employer-sponsored retirement plan and they have less wealth in such plans (Table 1). The data highlight three main points. First, households of color are less likely to have retirement benefits than white households (Table 1). For example, 55.7% of black households had any retirement benefit from an employer in 2019, compared to 73.5% of white households (Table 1).

Second, the average and median retirement savings are lower for households of color than for white households (Table 1). For instance, Latino or Hispanic households had median 401(k) balances of $30,000 in 2019, compared to $50,000 for white households (Table 1). Black households had balances of only $25,000: half that of white households.

Third, even with similar retirement plan coverage, households of color can end up with less retirement wealth. For instance, households of other and multiple races and ethnicities had coverage rates similar to those of white households in 2019, but they ended up with average and median wealth amounts that were much lower than those of white households (Table 1). In the end, households of color have systematically less retirement wealth than white households do.

Managing Risks Associated With Retirement Savings

Workers who save money with DC accounts also need to manage the associated risks. These include the financial risks directly associated with those accounts, such as investing money in the stock market, as well as those financial risks relative to the many other risks that workers of color in particular face before and during retirement.

People of color need to strike a balance between financial risks in their retirement accounts and greater risks in their daily compared to white households. This balance is apparent in the data. On the one hand, African American and Latino workers invest somewhat less of their retirement savings in stocks than white workers do (Bhutta et al., 2020; Choudhury, 2002). On the other hand, people of color face greater risks in homeownership (Francis & Weller, 2021b), less stable jobs (Ajilore, 2020; Solomon & Weller, 2018; Weller, 2019), greater health-care costs (Maxwell, 2020), and more caregiving responsibilities for family members (AARP, 2020; Cohen et al., 2019; Collinson & De La Torre, 2017). These additional risks then likely contribute to people’s lower willingness to invest in stocks with their retirement savings.

Racial gaps in two economic risk factors—health care and support for family members—carry over into retirement. For one, health outcomes tend to be worse for people of color than for white people, as people of color frequently face more health risks in their neighborhoods and on their jobs (Richardson & Norris, 2010; Thebault et al., 2020). Many people of color live in areas with worse pollution (see for instance, Taylor, 2014); suffer from worse housing conditions due to racial segregation, which, for example, can lead to higher incidences of asthma (Alexander & Currie, 2017); live in areas with fewer healthy food options (Walker et al., 2010); work in more physically demanding jobs; and face a greater threat of police brutality and incarceration, for African Americans in particular (Hollis & Jennings, 2018). Worse, many people of color have worse health insurance and often receive less authorization for treatment than white patients (Obermeyer et al., 2019), have less access to health care than white people (Ko et al., 2014), and face more health-care discrimination (Sabin, 2020; Williams et al., 2019). The combination of worse health outcomes to begin with and less health care increases economic risks for people during their careers and raises their costs in retirement.

Households of color also often provide financial support for other family members, and they are also more likely to receive financial support from their families than is the case for white households. This may reflect the fact that people of color have a lot less wealth than white households over several generations (Toney & Hamilton, 2020). The financial support of family and friends makes it more difficult to save for retirement during people’s careers, and it also adds costs during retirement (Francis & Weller, 2021a).

Conclusion

Black, Latino, and many Asian households experience retirement insecurity at higher rates than white households. These disparities in retirement security exist for myriad reasons. Black and Latino workers face labor market discrimination and occupational segregation that leave them in low-paying jobs and with limited access to retirement savings benefits. Both lower wages and less access contribute to lower retirement savings. Black and Latino households are also less likely than white households to be the beneficiaries of intergenerational wealth transfers that can help lessen debt burdens and ease access to higher education and homeownership, both of which are crucial pathways to wealth building and retirement savings. Households of color are also less likely to benefit from increases in home equity, due in part to discrimination in lending markets and the devaluing of homes in majority-minority neighborhoods. Finally, black and Hispanic households are more likely to experience additional drains on savings, such as adverse health outcomes coupled with limited access to reliable health care and the call to financially support friends and family members in need.

Understanding the root causes of disparities in retirement savings and retirement security is important in order to show the path forward for potential policy solutions. We highlighted a few unanswered questions surrounding the racial retirement gap that help to get at the root causes and potential policy solutions in this paper.

Understanding the root causes of disparities in retirement savings and retirement security is important in order to show the path forward for potential policy solutions.

Funding

None declared.

Conflict of Interest

None declared.

References

© The Author(s) 2021. Published by Oxford University Press on behalf of The Gerontological Society of America. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com

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