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Blacks lag behind Whites in retirement savings

Kush Azrael | 1/15/2014, 9:48 a.m.

Although Blacks have made advancements from the civil rights movement they still lag behind Whites in wealth and retirements savings.

Research from the National Institute on Retirement Security found that more than 60 percent of White households have retirement accounts, while more than 60 percent of Black households do not, and for those who do have accounts have far less than their White counterparts.

The average retirement savings for Whites ready to retire is four times that of Blacks (120,000 vs. 30,000). Saving for retirement seems to come easier for Whites because 62 percent of them have an employer sponsored retirement plan while only 54 percent of Blacks do.

If retirement savings patterns stay the way they are, a lot of retirees will spend their last years trying to decide if they will pay for housing, food, or medication especially Blacks. Only 25 percent of Blacks own stocks, bonds, or mutual funds and 40 percent have IRA’s or 401k’s.

By 2050 Whites will be just a small majority of the American retirees. So, the personal finances of minorities will determine the state of the America’s retired people. Some of the reasons for the savings gap include, differences in money earned, the type of industries Whites and Blacks concentrate in, retirement savings options and personal financial choices. Beyond that is the reality that twice as many Black senior citizens live in poverty than their White counterparts.

From 2005 to 2010, the median White household income was $55,896. For Blacks the median income was just $34,443.

One of the major reasons for this is that Whites are more likely to be hired in high paying industries like insurance and finance, while Black workers were concentrated in retail and service industries or either work for government agencies and manufacturing. Most low wage workers simply can’t afford to save for retirement or don’t have access to company sponsored retirement plans.

Blacks also tend to carry greater burdens such as credit card debt, student loans and other types of debt that severely limits their ability to save for retirement.

Many Blacks are only familiar with low yield savings such as savings accounts and CD’s and are uncomfortable with the risks that come with stocks or 401k’s.

Only 8 percent of Whites age 65 or over live under the federal poverty line while 20 percent of Blacks do.

Today 401k’s are the primary way for Americans to save for retirement.

Even with the few who do save in 401k retirement plans, the contributions are lower.

Also studies show that Blacks are less likely to invest in equities. Blacks have about two thirds of their 401k assets invested in the stock market but Whites had 73 percent invested in equities. Blacks have also been found to be more likely than Whites to have a loan and are twice as likely to take a hardship withdrawal from their 401k’s. Nearly two of every five Blacks borrowed from their 401k plans compared to just one in five Whites. The impact increases during an economic downturn, when unemployment rises and withdrawals and loan defaults go up