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 — and an over-reliance on Social Security to fund every aspect of retirement.

The lines are clear when it comes to race and retirement. On average, white Americans have seven times the retirement savings of Black Americans, and five times the savings of Latinx retirees.1 What’s more, if current trends continue, Black and Latinx Americans are at risk of owning zero wealth by 2053 and 2073, respectively.2 With millions of workers, disproportionately BIPOC, headed on a path to retirement insecurity, this is an important moment and opportunity to reimagine how financial security and retirement readiness can be made more equitable for all.

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 many BIPOC Americans and supporting their diverse financial needs with actions that can alter the trajectory of their retirement outlooks and goals.

In 2016, the average wealth of White families ($919,000) was more than $700,000 higher than the average wealth of Black families ($140,000) and of Latinx families ($192,000).

History Matters: Building A Legacy

Today, inherited wealth accounts for half of all wealth in the U.S.3 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 — once backed by the U.S. government — that graded and color-coded neighborhoods to determine mortgage or loan eligibility. The practice segregated communities, driving down home values in non-white neighborhoods, and shaped infrastructure that effectively denied equity in public services, job opportunities, educational opportunities and healthcare.

Though the policy has been outlawed for more than half a century, its impact can still be felt today. By some estimates, homeowners in redlined neighborhoods have earned 52% less home equity over the last 40 years than those in greenlined areas — equity that could have been passed down to future generations as it has been in White families.4

Income Matters: The Wealth Gap

Data from the Federal Reserve’s 2019 Survey of Consumer Finances shows that White households own 83.9% of the wealth in the U.S., while Black households own 4.1% and Latinx households own 2.5%.5  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.6

These numbers have remained largely unchanged over the past 30 years and speak to a substantial and troubling disparity. The gap continues with age, putting the Black and Latinx workforce most at risk for retirement insecurity. Without Social Security, the poverty rate among Latinx seniors would be nearly 50% and the poverty rate among Black seniors would exceed 50%.7

Support Matters: Access, Education, Engagement

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 on trust and credibility found that employees who trust in their employers are more loyal, committed, engaged — and far more likely to advocate for an organization. Further, the report found that 92% of employees expect their CEOs to take the initiative on looming societal issues, such as income inequality.9

Through actionable steps that educate and empower a diverse workforce to reach their full retirement savings potential, businesses can help turn the tide on the racial retirement wealth gap while growing trust and long-term employee loyalty within their organization.

Financial Education and Training

Exposure to things like retirement benefits or financial planning may vary on a household-by-household basis, but for most Americans the first place they turn with questions about finances are friends or family. In communities that have experienced chronic financial insecurity in retirement, and had less access to employer-sponsored benefits, the likelihood of having family or friends to help guide people through the planning and enrollment process may be lower.

Like all employees, BIPOC employees may be playing catch up when it comes to financial literacy. With a Financial Wellness program that provides training opportunities for employees who may be underinvesting in their benefits, businesses can bolster financial competence for short-term needs, such as budgeting or managing debt, to long-term retirement goals. Measuring engagement, as well as use of on-demand or self-directed training, can help employers track progress and refine their communications strategy to help increase employee participation.

Persistent Disparity For Three Decades. Black families earn just 61 cents for every dollar of income earned by White families. Latinx households earn just 74 cents for every dollar of income earned by White families.

Automatic Enrollment in a 401(k) to Increase Participation.

Today, fewer than half of Black and Latinx Americans have access to a 401(k) retirement plan through their employer.10 Even if your business doesn’t offer a retirement plan, there is still an opportunity to provide all of your employees with some basic education around the importance of saving for retirement and opportunities to do so outside a workplace benefits program.

For those businesses who do 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 studies show workers are less likely to “opt out” of a designated contribution once they’ve been enrolled. And, once enrolled, help employees understand the importance of making whatever contributions they can afford – research suggests workers save 15% of their yearly income for retirement,11 even small amounts can make a big impact on building a nest-egg.

Matching and Tracking Progress

Organizations that match employee contributions see much higher plan participation — as well as increased loyalty from their workforce. Tracking employee participation by gender, race and ethnicity can help your company measure participation, and leverage the right reminders or targeted educational opportunities to increase engagement. Offering tools that allow self-serve management can become a powerful incentive, allowing employees to easily track their progress as their money grows.

Using Personalization to Boost Engagement

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 at their discretion can not only improve engagement, but also bolster 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 ranging from savings, investment and debt management.12 In creating an inclusive plan design that involves employees in the decision-making process, organizations can tailor their training and engagement solutions to target the people and topics most in need.

Supporting the financial wellness of every employee helps ensure the continued health of your business. By taking actionable steps to help close the retirement race gap and boosting retirement readiness for BIPOC, your entire workforce grows stronger. 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.

Empower Your Workforce

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1 Social Security is a Great Equalizer. Center for Retirement Research at Boston College. January 2020. Number 20-2. https://crr.bc.edu/wp-content/uploads/2020/01/IB_20-2.pdf
2 The Road to Zero Wealth. The Institute for Policy Studies and Prosperity Now. September 2017. https://prosperitynow.org/sites/default/files/PDFs/road_to_zero_wealth.pdf
3 Wealth and Income Concentration in the SCF: 1989–2019. Federal Reserve. September 28, 2020. https://www.federalreserve.gov/econres/notes/feds-notes/wealth-and-income-concentration-in-the-scf-20200928.htm
4 Redlining’s Legacy of Inequality. RedFin News. June 11, 2020. https://www.redfin.com/news/redlining-real-estate-racial-wealth-gap/
5 Distribution of Household Wealth in the U.S. since 1989. Federal Reserve. Distribution of Household Wealth in the U.S. since 1989 https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/
6 Racial disparities in income and poverty remain largely unchanged amid strong income growth in 2019. Economic Policy Institute. September 16, 2020. https://www.epi.org/blog/racial-disparities-in-income-and-poverty-remain-largely-unchanged-amid-strong-income-growth-in-2019/
7 Social Security Lifts More Americans Above Poverty Than Any Other Program. Center on Budget and Policy Priorities. February 20, 2020. https://www.cbpp.org/research/social-security/social-security-lifts-more-americans-above-poverty-than-any-other-program#_ftnref4
8 Education Alone Can’t Close the Racial Wage Gap, February 17th, 2020 https://thinknow.com/blog/education-alone-cant-close-the-racial-wage-gap/
9 2020 Edelman Trust Barometer. Edelman. 2020. https://www.edelman.com/trustbarometer
10 The State of American Retirement Savings. Economic Policy Institute, December 10, 2019. https://www.epi.org/publication/the-state-of-american-retirement-savings/
11 How Much To Save For A Secure Retirement. Center for Retirement Research at Boston College https://crr.bc.edu/wp-content/uploads/2011/11/IB_11-13-508.pdf
12 Financial Literacy and Wellness among African-Americans. Global Financial Literacy Excellence Center. 2019. https://gflec.org/initiatives/financial-literacy-and-wellness-among-african-americans/


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