Just 41% and 35% of Black and Hispanic families, respectively, had any retirement savings in 2016, compared to 68% of white families. In addition to lower wages, workers of color are less likely to have access to employer-sponsored retirement plans than white employees.
As a result, the typical Black and Hispanic household approaching retirement has just around half the total retirement wealth of the typical white household, according to new analysis from the Economic Innovation Group (EIG).
“A TSP-like plan is suggested mainly for its automatic enrollment and matching contributions provisions.”
To address these disparities, EIG—an advocacy organization consisting of high-profile retirement savings experts like Teresa Ghilarducci and Kevin Hassett—has proposed a bipartisan framework modeled off of the federal Thrift Savings Plan (TSP). It would disproportionately benefit workers of color “through enhanced access to retirement savings accounts and more equitable opportunities for wealth building,” the organization reports.
“The poverty rate among Black and Hispanic Americans is 20% and 17%, compared to 8% among non-Hispanic whites,” Kenneth Megan and Angelica Banks write in the analysis. “And median wealth among Black and Hispanic households stands at around $24,000 and $36,000, respectively, compared to $143,000 for white households. Lower levels of financial resources makes saving more difficult, and is a driving force behind racial disparities in retirement security.”
A TSP-like plan is suggested mainly for its automatic enrollment and matching contributions provisions, which are proven to increase coverage and participation. EIG cites the Congressional Budget Office in noting that, after the TSP adopted these features, enrollment increased from 63% to 94% among Black workers, and from 55% to 95% among workers in the bottom third of earnings.
“Automatic enrollment is effective because it mitigates the inertia that occurs when workers are required to actively enroll in retirement plans, whereas matching contributions both incentivize savings and spur long-term wealth creation,” EIG concludes. “It is also important to note that the low-cost investment options offered by the TSP help to ensure that workers are not overburdened with fees and are instead socking away more for retirement.”
THE FULL EIG ANALYSIS IS FOUND HERE
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Should I save less to fell close the gap?