Minorities, especially Latinos, are not saving enough for retirement and are less likely to be covered by an employer-sponsored retirement plan than white workers, according to a study by the National Institute on Retirement Security.
The study also found that minority households have substantially lower retirement savings balances than white households, even after controlling for age and income.
Nari Rhee, manager of research at NIRS and author of “Race and Retirement Insecurity in the United States,” said that younger people from all backgrounds tend to have less access to retirement plans in the workplace and that there are some geographic differences, but “even at the same age, we are seeing racial disparities.”
A lot of that racial disparity can be chalked up to occupational characteristics, she said.
In her report, Rhee points out that public-sector workers have greater access to retirement plans at work than private-sector workers. There is a high concentration of black workers in public-sector jobs, she said, which boosts their access, but “Latinos take a double hit: they are less represented in the public sector and work in lower wage jobs in the private sector,” she said.
If the report looks at just native-born Latinos, the retirement gap shrinks, but it shines a spotlight on the fact that a lot of immigrant Latinos are left out, she said.
Cultural influences can have a major impact on retirement savings, according to a report by The Principal Financial Group.
Like the NIRS report, it found that there is a large subset of the Latino population that is “unacculturated,” and it is this group that has the lowest retirement plan participation rate across companies of all sizes.
This market segment is defined as the 26 percent of Hispanic adults who are foreign-born and tend to be “Spanish-dominant” in their cultural practices and language usage, The Principal found.
The low plan participation rate among this group of workers could go even lower if something isn’t done to improve it, which could prolong the looming retirement crisis in America, the study found.
Hispanics now comprise the largest minority group in the United States, according to the U.S. Census Bureau, and the percentage of Hispanic employees at companies that sponsor retirement plans is rising. That means more effort needs to be made to provide education about financial concepts and address financial literacy among this group of workers, The Principal said.
Some financial professionals encourage plan sponsor clients to translate retirement materials into Spanish but The Principal Financial Group found that this is insufficient for raising the low participation rates among unacculturated U.S. Hispanics.
To really reach this group of people, financial professionals need to come up with custom education initiatives that go beyond simple translation to provide a meaningful cultural context. The initiatives also need to be understandable, build trust and give workers ownership, offer options that appeal to a conservative-investment mindset and determine how widespread the acculturation/communication needs are at a company.
The Principal conducted its study of the Hispanic marketplace because it wanted to see if there was anything that could be done to bridge that retirement income gap, said Carlos Rojas, Hispanic market strategies director for Principal Financial Group.
The first thing his company did was segment the Hispanic marketplace into three groups: acculturated, those people who have been in the country longer and have adopted U.S. customs and language; those who are partially acculturated, meaning they’ve been in the states for a few years and are slowly beginning to fit in; and the unacculturated.
It observed that many first generation immigrants are distrustful and fearful about the unknown. Language barriers can be a major problem, but there are cultural barriers that also come into play when it comes to learning about how to save for retirement, Rojas said.
Many people mistakenly believe that Hispanics just don’t understand that saving in a 401(k) or other defined contribution plan would benefit them. What they don’t understand is that Hispanics put family first. Family takes care of family. Many are taking care of their elder parents and naturally assume that their children will do the same for them, so saving for retirement isn’t important to them.
Many younger Hispanic workers come to this country with the full intention of returning home someday, Rojas said. So when they sit in a retirement plan enrollment meeting and hear about retirement, saving for 30 years and reaching age 62, that information doesn't capture their interest or focus.
“It’s not that they don’t understand or care about retirement, they don’t see any connection,” he said.
The problem is that the longer these people stay in the U.S., the more acculturated they become and they begin to push back their return date to their home country. In the meantime, they haven’t saved for retirement.
“We saw this as a missed opportunity. Especially for the individual. They are missing out on an opportunity,” Rojas said.
That’s why Principal Financial Group set out to form a new education program for clients to help them reach Hispanic employees. Instead of just translating all education materials into Spanish and giving a bilingual presentation to them, the company is now taking a more bicultural approach, in which its employees are well-versed in the cultural traditions of the 22 Latin American countries that make up the U.S. Hispanic market and can help them see why saving for the long-term is a good idea, Rojas said.
Principal Financial Group found that once U.S. Hispanic workers start to participate in a company plan, they embrace the concept of saving for a long-term goal.
When its report was written, 32 percent of the Hispanic audience with a Spanish language preference, who were exposed to the Principal’s new educational approach, were taking favorable action within their retirement savings plan. They either joined a plan or increased their deferral percentage.
Now that percentage is about 35 percent, Rojas said.
According to the NIRS report, a large majority of black and Latino working-age households — 62 percent and 69 percent, respectively — do not own assets in a retirement account, compared to 37 percent of white households.
This gap persists across age groups. Households with access to a defined benefit pension plan through a current job are more likely to have dedicated retirement savings in a 401(k) or IRA type account than households without DB pensions, 74 percent vs. 66 percent, NIRS found.
Only 54 percent of black and Asian employees and 38 percent of Latino employees age 25 to 64 work for an employer that sponsors a retirement plan, compared to 62 percent of white employees. When it comes to private-sector jobs, Latinos are 42 percent less likely than whites to have access to a job-based retirement plan, NIRS found. Blacks are 15 percent less likely and Asians are 13 percent less likely than whites to have access to a workplace retirement plan through the private sector.
No group is saving enough for retirement, according to Rhee.
“When they are supposed to have eight to 11 times income saved by the time they retire and the majority don’t have one times their income saved” it is a national problem, Rhee said.
In her study, Rhee found that households of color are less than half as likely to have one time their income saved for retirement as white households. That means that 41 percent of white households have also saved very little for retirement, she added.
“No racial group is adequately prepared for retirement, but the crisis is particularly dire for people of color and that is especially true for Latinos, who have less access to workplace retirement plans and little retirement assets,” Rhee said.
Diane Oakley, executive director for the National Institute on Retirement Security, said that to bridge this gap in savings, Congress needs to find ways to tackle the country’s deficit without cutting spending for programs like Social Security and Medicare and, instead, make sure they remain a “viable safety net.”