retirement savings  |  may 10, 2023

Closing the Retirement Savings Gap for Minorities

How Black and Hispanic workers can get on track to saving more for retirement.

2:14

Sudipto Banerjee, Ph.D.

Vice President, Retirement Thought Leadership

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Hi – I’m Sudipto Banerjee, vice president of Retirement Thought Leadership at T. Rowe Price.

The racial and ethnic wealth gap is a persistent problem in the United States. And we see clear disparities in the area of retirement saving.

Black and Hispanic workers lag behind their white counterparts when it comes to retirement plan access, and this impacts participation.

About half of all workers in the private sector participate in a workplace retirement plan.

But Black and Hispanic workers participate less than their white peers, often due to lack of access.

Income certainly plays a role in this.

On average, Black and Hispanic workers earn less, and tend to prioritize other competing financial needs over retirement saving.

But there are steps that Black and Hispanic workers can take to try and improve their ability to have the retirement they envision. 

Those workers who have access to a retirement plan should consider contributing early and consistently.

This may be easier said than done and may require workers to shift financial priorities.

But even small contributions can grow to large amounts over time.

Black and Hispanic workers may also have access to financial wellness programs through their employer.

These programs can guide workers on prioritizing retirement saving while juggling other financial concerns.

Racial and ethnic wealth inequality is a complex problem.

But together, we can work to help improve retirement outcomes for everyone.

 

Key Insights

  • Dramatic racial and ethnic disparities in retirement savings persist in the U.S., with no simple solution.

  • Our research shows that Black and Hispanic workers are lagging in plan participation and savings while also facing a greater range of competing financial priorities.

  • There are several steps that Black and Hispanic workers can take to help improve their participation rates and, ultimately, their retirement outcomes.

The racial and ethnic wealth gap is a growing and persistent problem in the United States, and this shows up in the area of retirement savings. Black and Hispanic workers, especially, remain behind their white peers when it comes to plan participation and retirement savings.

Among private sector workers between 21 and 64 years old, only 40.5% of Black workers and 31.9% of Hispanic workers participate1 in a retirement plan, compared with 57.7% for white peers.2

Income disparities play a role in this, but participation gaps narrow in cases where plans are offered. When plans are made available, Black workers sign up at a rate of 81.6%, with Hispanics at 82.2%, and white workers at 90.4%.3

It’s clear that access matters, and the policy makers can play a major role in helping to improve retirement outcomes for all by creating more incentives for plan formation and participation.

But there are also some key steps that Black and Hispanic workers can take to help improve participation rates and retirement outcomes.

Steps to Help Boost Retirement Plan Participation and Help Improve Outcomes

  • Prioritize retirement savings. All workers juggle competing financial goals, including paying down debt, saving for a home, or building an emergency fund. Black and Hispanic workers may benefit by prioritizing retirement saving.

  • Consider opting in and increasing your savings. Participate in your employer‑provided retirement plan and try to save up to 15% of your salary per year—including any employer contribution.

  • Start as early as you can. Black and Hispanic workers are more likely to delay saving for retirement. Try to avoid this and start saving early. The difference could be a more enjoyable retirement.

  • Take advantage of workplace financial wellness programs. Through these programs, companies may offer guidance and tools on things like debt management, budgeting, and emergency saving.

1Participation Rate = Share of total private sector workforce (with or without access to a retirement plan) who participate in a retirement plan.
2As of March 2021. Source: Author’s calculations from the Annual Social and Economic (ASEC) supplement of the Current Population Survey (CPS), 2021. IPUMS CPS, University of Minnesota.
3Source: Author’s calculations from the Annual Social and Economic (ASEC) supplement of the Current Population Survey (CPS), 2021. IPUMS CPS, University of Minnesota.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making.

The views contained herein are those of the authors as of March 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

202305-2890989

 

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