Minorities' Savings Accounts Aren't Adding Up For Retirement

Jan 14, 2014
Originally published on March 4, 2014 12:51 pm
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This is TELL ME MORE from NPR News. I'm Michel Martin. Coming up, last week we talked with a former teacher who said that teachers of color are more likely to quit than others. And she offered some thoughts about why that is. This week, we get a different perspective from another teacher, also of color, who has 13 years in and is still going strong. And we'll hear from her in a few minutes.

But first, we want to talk about another issue where different groups are experiencing different realities. And the issue here is retirement savings. There's a new report by a group called the National Institute on Retirement Security. It's a nonpartisan group dedicated to encouraging policies that, quote, enhance retirement security, unquote. The group reported last July that the picture is not pretty for most households. In fact, that the average working household has quote, virtually no retirement savings, unquote. The group now has a new report out where it says that the retirement pictured for minorities is even worse, particularly for Latinos. So Nari Rhee is manager of research at the National Institute on Retirement Security. She's the author of the study, and she's with us now to tell us more about it. Welcome. Thanks so much for joining us.

NARI RHEE: Hi, thank you for having me.

MARTIN: So what's the figure you use to determine whether someone has retirement security? Is there, like, a baseline number or is there a ratio of earnings to savings that you cite?

RHEE: Yeah. So, like you mentioned, experts recommend that you have about 11 times - it's 11 times depending on when you retire - your salary when you reach the age of 65 or maybe 67. And there are some financial firms that offer benchmarks along the way. So by the time you're 40, for instance, they say that you should have about twice your salary saved up.

MARTIN: I see, OK. So and you're saying that workers of color are significantly less likely to meet these benchmarks. For example - and you say that Latinos in particular are having a difficult time sort of meeting that benchmark. You say that, for example, only 54 percent of black and Asian employees and 38 percent of Latino employees work for an employer that sponsors a retirement plan whether it's a - and that's compared to 62 percent of white employees - whether that's a 401(k) or a defined-benefit pension.

And that they lag behind white households in coverage by defined-benefit pensions that guarantee lifetime income. I have to tell you that it was a surprise to me that there were that many people who still have defined-benefit retirement plans. Why is that? Why do you think that is that these disparities are as large as they are?

RHEE: Well, I think these disparities are large mainly because of the kinds of jobs in which workers of color are situated versus white workers on average. And so there are kind of two patterns to look at. One is the fact that in the private sector, workers of color, including blacks and Latinos and to a certain extent Asians, tend to be more disproportionally represented in lower-wage jobs. And those jobs don't tend to offer very high wages or any kind of benefits much less retirement benefits.

So that's one pattern. And then there's a public-private difference. We know that in the public sector, benefits tend to be better, and that there is more coverage in retirement plans, particularly defined-benefit pensions. So in that sense, African-Americans are a little bit better off there because they're more represented in that sector. And on the other hand, Latinos are taking a double hit because they're less represented in the public center that offers those benefits. And at the same time, in the private sector, they're the most likely to be in the lowest-wage jobs that offer no benefits at all.

MARTIN: But you also wrote that households of color have substantially lower retirement savings than white households, even after you control for age and income. Why is that?

RHEE: I think there are a few things. One thing is that communities of color tend to hold more of their household wealth in things like home equity and less in financial assets, like stocks and bonds, compared to white households. And that wound up having a disproportionate impact on communities of color during the last financial crisis with the housing market meltdown because they were more invested, in a sense, in housing wealth.

And they took a bigger hit in that arena. So there is a sort of more of a tendency to hold wealth in things like that and in businesses as opposed to in the financial market. And I think part of it has to do with the comfort level that households of color have with financial assets versus things like home equity.

MARTIN: A tangible asset, like a house.

RHEE: Yeah, exactly.

MARTIN: You know, I also do wonder, though, whether there's some cultural pressure in the groups that you mentioned to help family members out that may not exist in other groups. There's a kind of traditional belief that there's a responsibility not just to the nuclear family but to the extended family. And I do wonder whether that plays a role as well.

RHEE: Yeah. I - you know, my research didn't speak to that. But I have been thinking that that's a really important thing to remember in terms of what values are. So, you know, we have these kind of white middle-class values around the nuclear family, and that's where your resources are focused. And I think in other communities - you're absolutely right - that there's more of a value towards helping others in need. And that when people come into some sort of windfall or have some savings, there are other demands and other pressures on that money besides saving for retirement or building up wealth.

MARTIN: Well, there's clearly a lot to think about here. We only have a minute left here. Is there anything you would wish us to think about or any thoughts that you may have for people as they contemplate the work that you've just done in this particular area?

RHEE: Yeah. I mean, I think - I want to point out that this is not an individual problem only. It's really a national problem. And this is going to impact - you know, as millions of workers go into retirement without adequate assets - and this applies to every group, but especially communities of color - that means more strain on families to support their elders. It means more strain on the social safety net, nonprofit organizations and on the state and federal budget. And so states in particular are taking a very close look at what they can do to help workers without access to retirement plans actually get access through some sort of a state-sponsored plan.

MARTIN: That was Nari Rhee. She's manager of research for the National Institute on Retirement Security. Her latest report focuses specifically on workers of color. Her earlier reports focused on workers in general. And she was kind enough to join us from member station KQED in San Francisco. Nari Rhee, thanks so much for speaking with us.

RHEE: Thank you. Transcript provided by NPR, Copyright NPR.