Retirement Preparation: Differences by Race and Ethnicity
The murder of George Floyd is one of many recent events that have led to a renewed focus on pervasive racial inequalities in the United States. The social and economic inequalities that divide Whites, Blacks, Hispanics, and other races during their working years carry through into retirement, with White retirees possessing dramatically higher incomes and assets than retirees of other races. Total retirement incomes—which include Social Security benefits, pensions, the drawdown of retirement account balances and other savings, and welfare benefits paid by governments—reflect the inequality of incomes between races that are seen throughout Americans’ working years.
It is less clear, however, how policymakers should interpret these patterns. One possible explanation is that Black and Hispanic households fail to save adequately during their working years, due to a lack of access to retirement plans, lower levels of financial literacy, or other reasons. Another possible explanation is that Black and Hispanic households do tend to save adequately, whether benchmarked by theoretical economic models or practical financial planning tools, but that their lower levels of lifetime earnings result in low incomes both while working and in retirement. Policy responses to the former explanation may focus on expanding opportunities and incentives to save, while policy responses to the latter explanation may focus on changes to Social Security or other retirement programs to better protect against poverty in old age.