New Research on the Relationship between Race and Retirement Security in the U.S.

A new study from the National Institute on Retirement Security (NIRS) documents the wide gulf between white Americans and Americans of color when it comes to retirement savings. The study looks at both worker- and household-level data and finds pervasive racial disparities in access to employer-based retirement plans and levels of retirement savings. Even after controlling for age and income, households of color have substantially less access to and lower levels of retirement savings than white households.

A little over half (57 percent) of workers ages 25-64 have access to a retirement savings option through their employer. But access and participation are not synonymous, as this figure from the report illustrates.

Author of the study, Nari Rhee, pointed out during a webinar about the findings that take-up rates for workplace savings are influenced by several factors: earnings level, eligibility (often determined by length of employment), and the type of plan made available by the employer [defined benefit plans are automatic, while workers typically have to initiate sign-up for a defined contribution plan such as a 401(k)]. Each of these factors has a direct link to race – for example, workers of color are disproportionately likely to be low-income and in positions where they’re not eligible for retirement plan participation. Rhee also noted that while it’s certainly true that older workers have more access to workplace retirement accounts, the racial disparities still hold as workers age. 

Another important finding of the NIRS report concerns the relative importance of private versus public sector employment in determining access to retirement savings. Rhee’s analysis showed that only 51.9 percent of private sector workers had access to a plan, compared to over 80 percent of public sector workers.

Interestingly, the public sector has more racially equitable access to retirement savings plans – that is, the disparities across race among workers in the public sector are less severe than they are in the private sector. Rhee pointed to several labor market characteristics that make this phenomenon particularly noteworthy. For example, there are fewer Latinos represented in the public sector, which means that Latino Americans as a whole group are less likely to benefit from the greater degree of retirement savings access in that sector. Additionally, Rhee noted that within the private sector, Latino workers are concentrated in lower wage jobs – a situation that translates into less disposable income to dedicate to savings as well as less likelihood of eligibility for a work-based plan.

The report also contains data on retirement account ownership broadly – including plans that people access independently outside of the workplace such as an Individual Retirement Account (IRA). When considering all forms of retirement savings, the NIRS study finds that just 63.4 percent of whites, 38 percent of blacks, and 30.8 percent of Latinos have any retirement savings (according to 2010 data). In fact, the median value for a retirement account held by black or Latino working-age households is $0, because a majority of these households do not own an account at all. Overall, 3 out of 4 black households and 4 out of 5 Latino households ages 25-63 have less than $10,000 set aside in dedicated retirement savings.

According to the NIRS study, while Americans of all races tend to have insufficient savings set aside for retirement, Americans of color are much worse off than white Americans. This is due to a set of complex and interlocking issues – trends in employment by sector, earnings level, and access to accounts all intersect with race.

However, a variety of strategies could help mitigate this inequality. Expansion of workplace savings to include more workers would be an excellent place to start. As Aleta Sprague, Reid Cramer, and Michael Calabrese detailed in a recent paper, the important work to design such a system in already underway in the state of California, which is embarking on a journey to build an automatic and state-based savings platform to cover more workers. Furthermore, our tax code currently subsidizes the retirement savings of millions of workers – but does so in a way that benefits primarily higher-income earners. Some relatively modest and simple changes to this system could have a major impact on how our government promotes savings for all.