Turning the Tide on the Retirement Race Gap

Race shouldn’t be a barrier to retirement security, but it’s a living reality for Black, Indigenous and people of color (BIPOC) Americans. Lower wages, higher debt and fewer workplace benefits result in less money for long-term personal savings. 

On average, white Americans have seven times the retirement savings of Black Americans, and five times the savings of Latinx retirees.¹ With millions of BIPOC workers headed on a path to retirement insecurity, now is the time to reimagine how financial security and retirement readiness can be made more equitable for all.

By taking actionable steps to help close the retirement race gap and boosting retirement readiness for BIPOC Americans, your entire workforce grows stronger. 

Today, inherited wealth accounts for half of all wealth in the U.S.² While white Americans have built wealth through better-paying jobs and higher home values, BIPOC communities have, historically, not been afforded equal access to these things and have struggled to save.

One major factor in this struggle was redlining, a discriminatory lending practice that graded and color-coded neighborhoods to determine loan eligibility. The practice segregated communities and shaped infrastructure that effectively denied equity in public services, job opportunities, educational opportunities and healthcare to BIPOC. Though the policy has been outlawed for more than half a century, its impact can still be felt today. 

White households own 83.9% of the wealth in the U.S., while Black households own 4.1% and Latinx households own 2.5%.³  Wages play a large factor in this disparity, with Black households earning just 61 cents and Latinx households earning just 74 cents for every dollar of income earned by White households.⁴ These numbers have remained largely unchanged over the past 30 years.

As the workforce ages the retirement race wealth gap continues to persist putting Black and Latinx employees most at risk for retirement savings shortfall. Consider that without Social Security, the poverty rate among Latinx seniors would be nearly 50% and the poverty rate among Black seniors would exceed 50%.⁵

Investing in the financial wellness of every employee is not only the right thing to do, but it’s also good for business. Recent research shows that employees who trust in their employers are more loyal, committed, engaged — and far more likely to advocate for an organization. ⁶

Through actionable steps that empower a diverse workforce to reach their full retirement savings potential, businesses can help turn the tide on the racial retirement wealth gap. 

Exposure to things like retirement benefits or financial planning may vary on a household-by-household basis, but in communities that have experienced chronic financial insecurity in retirement, and less access to employer-sponsored benefits, the likelihood of having family or friends to help guide people through the planning and enrollment process is lower.

By instituting a Financial Wellness program and providing training opportunities for employees who may be underinvesting in their benefits, businesses can bolster financial competence for short-term needs and long-term retirement goals. Measuring program engagement can help employers track progress and refine their communications strategy to help increase employee participation.

Today, fewer than half of Black and Latinx Americans have access to a 401(k) retirement plan through their employer.⁷ Even if your business doesn’t offer a retirement plan, there is still an opportunity to provide your employees with basic education around the importance of saving for retirement and opportunities to do so outside a workplace benefits program.

For those businesses that offer a retirement solution, it’s important to make the process of enrolling and contributing as easy as possible. Instituting automatic enrollment in your 401(k) plan can substantially increase employee participation, and once they’ve been enrolled, workers are less likely to “opt out.”. After enrolling, help employees understand the importance of making contributions they can afford.⁸ Even small amounts can make a big impact on building a nest-egg.

An employer match is a powerful incentive to encourage employees to contribute to their financial futures. Organizations that match employee contributions see much higher plan participation as well as increased loyalty from their workforce. Offering self-serve management tools that allow employees to easily track their progress as their account grows can be an effective incentive as well. By tracking employee participation by gender, race and ethnicity your company can gauge participation to develop relevant reminders and targeted educational opportunities that will also increase engagement. 

Offering a customized solution tailored to an individual’s specific needs can increase financial confidence over time. In addition to personalized statements and one-to-one consultations, providing employees with the flexibility to access tools, training and educational resources on demand can not only improve engagement, but also improve financial literacy.

A 2019 report from the Global Financial Literacy Excellence Center found that Black Americans’ financial wellness lags behind their White counterparts in personal finance topics. ⁹ By creating an inclusive plan design that involves BIPOC employees in the decision-making process, organizations can tailor their training, topics and engagement solutions for the people most in need.

While closing the gap will require wide-ranging public and private efforts, businesses are in a position to enact real change by recognizing the challenges facing these Americans and taking actions that can alter the trajectory of their retirement outlooks. A Morgan Stanley Financial Advisor can help you understand how your business and benefits can support the needs of a diverse workforce and help make retirement solutions accessible and equitable for all of your employees.