Persistent economic and housing discrimination against people of color threatens to keep millions out of retirement
Economists and investment advisers say there is still a huge gap between white and black Americans when it comes to retirement wealth, with roots that go back generations.
Alhamish Sims, portfolio manager at New York-based investment firm TIAA, said, “The accumulated wealth gap is a social, economic, political and labor market discrimination that has persisted for multiple generations in the black community. It comes from the legacy of I manage retirement plans for many teachers and others.
According to Federal Reserve data, black families tend to accumulate significantly less wealth than white families, up to 85% less. In other words, the typical white family has eight times as much wealth as the typical black family, says Sims.
This disparity can create a tough economic environment for older black Americans who are contemplating retirement or want to grow after retirement.
What causes disparities?
Economists say three key factors account for much of the inequality: home wealth, income and retirement plan participation.
“There is no serious researcher who does not believe that black people and black households are the cause of racial disparity and wealth inequality.”
Teresa Guirarducci, professor of economics and policy analysis at the New School for Social Research in New York, said, “There is no serious research that believes blacks and families are to blame for racial and wealth inequality. There is no one,” he says.
“When it comes to housing equity, federal policies on lending and redlining, along with blatant discrimination and violence that impede housing equity, and illegal activities that destroy land titles, have been the driving force. studies have shown. [people of color] from land acquisition,” she added.
The Color of Law, Richard Rothstein’s 2017 landmark history of how governmental segregation has shaped modern American metropolitan It traces the history of discrimination (and the resulting devaluation of black Americans).
“This wonderfully important book … shows how federal, state, and local housing policies divide America into two societies, separate and unequal, and use public power to unfairly treat African Americans. It shows how severe the damage was inflicted on the country,” said Florence Roisman. A law professor at Indiana University wrote about “the color of the law.”
In August 2020, The New York Times cited a 2018 report by Gallup and Brookings Institution researchers on the widespread undervaluation of black-owned real estate in the United States. The report found that homes in “black-majority” neighborhoods could be valued 23% lower than nearly identical homes in white-majority neighborhoods. It also found that black homeowners suffered $156 billion in cumulative losses from the writedowns.
Blacks tend to earn less than whites for various institutional reasons. And they face an even tougher situation when it comes to promotion.
You can’t save what you don’t have
“Black people have less money because they earn less,” says Jeffrey Sanzenbacker, an associate professor of economics at Boston University and a fellow in the University’s Center for Retirement Studies. “It is still due to discrimination, education and opportunities.”
In any given year, the median income of a black household is only 55% of that of a typical white household, Sanzenbacher said.
In any given year, the median income of a black household is only 55% of that of a typical white household.
“You can save if you have income,” he says. “The more you earn, the more you save.”
The situation looks even more dire for blacks when overall wealth is considered. (Wealth is the value of the assets you own minus your liabilities.) Blacks are at a huge disadvantage there too, and housing is a factor again.
“Wealth is capital accumulated over time,” Sanzenbacher said. “Homes. Retirement accounts. Checks and savings. And the amounts are even more unequal, with black households probably having 15% to 20% of the wealth of white households.”
Then there is the issue of participation in retirement plans.
Baltimore-based investment firm T. Rowe Price uses the US Census and other data to track retirement trends.
“One of the key factors, perhaps one of the most important, is participation,” said Sudipto Banerjee, director of retirement thought leadership at the company. “As you can imagine, there are some very large disparities among participants.”
Employer size matters
“We looked at the private sector, which is paid. In general, 50% overall participation is not a very positive story for any group. That in itself is not very good. No, when you go down to the bottom, the only two groups with above-average participation rates are whites and Asians,” Banerjee said.
Latino workers rank last, with about 32% participating in retirement savings plans, he said. About 40% of blacks participate.
Banerjee said one explanation is the size of the employer. Blacks and Latinos are concentrated in lower-income groups, while Latinos tend to work for small businesses that are less likely to offer retirement plans. But almost half of black people work for big companies. They may have access to programs, but low incomes for blacks may constrain participation.
“Black Americans will save less for retirement than whites and will pass on less wealth to the next generation.”
Over the decades, the Ariel Schwab Black Investor Survey has shown that 401(k) plans have been the gateway to investing for many Black Americans.
Ariel Patrick, chief public relations officer at Chicago-based Ariel Investments, said: “Our research shows that the participation gap between black and white investors in defined contribution plans will be nearly closed in 2022. However, participation rates have stagnated and are still well below 2015 figures.” The largest black-owned wealth management company in the United States.
“Although 2022 was a silver lining, black Americans are saving and investing more than they did in 2020, and white Americans are still saving and investing far more,” Patrick said. This savings-investment gap means that black Americans are saving less,” he added. Because when you retire, less wealth will be passed on to the next generation compared to the white generation. ”
seek a solution
When it comes to addressing retirement inequality, Ariel and other financial institutions find opportunities to advise Black Americans on investing and saving.
About a year ago, the TIAA launched a campaign called “Retirement Inequality.” It aims to address America’s “retirement crisis,” where 54% of black Americans do not have enough savings to retire.
“This campaign speaks to our commitment to highlighting these inequalities,” said portfolio manager Sims. “We’re trying to plant seeds in people’s minds. We want to have conversations.”
“Most of all Americans will not have enough money in retirement,” added Sims. “When we pull back the layers, we see that the problem is even more pronounced for some minorities. Our focus has been on what we can do as an organization to help people save. was.”
New Law Raises Expectations
Sims said the TIAA was encouraged by the passage of Secure 2.0, a new federal law that many observers see as one of the most important retirement bills in recent years. Secure 2.0 aims to help workers of all ages by expanding retirement plan coverage, increasing retirement plan savings, and simplifying and clarifying rules. Key Factor: Starting January 1, 2024, most new 401(k) and 403(b) plans established after the effective date must include auto-enrollment.
Other changes include raising the age at which retirees must begin receiving the required minimum distributions from their IRA and 401(k) accounts, and introducing a “catch-up contribution” for older workers with workplace retirement plans. ” includes an increase in the amount of
“This bill is having a positive impact on many groups,” Sims said.