Blacks Lag in Retirement Savings

Nest eggs much smaller than those of whites

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retirementnestegg1African Americans save far less each month and have considerably smaller nest eggs than their white counterparts, according to a recent survey.

The 11th annual Ariel/Schwab Black Investor Survey, sponsored by Ariel Investments L.L.C. and the Charles Schwab Corp., found that saving for retirement does not resonate in the same way for blacks as it does among whites.

“Everything we’ve seen from the report shows that our interest is high, but our actions are not comparable,” says Lisa Toppin, vice president of employee development and inclusion at Charles Schwab & Co.
The purpose of the report was to identify the similarities and differences between whites and blacks with regard to saving and investing, and assess shifts in attitudes and behavior over time.

The median monthly amount that blacks contribute to their 401(k) plan is $169, compared with whites, who contribute about 50% more, or $249 each month. As a result of the differing contribution amounts, the median total household savings for retirement reported by black respondents is $53,000, in contrast to whites at $114,000.

Also, this year’s survey, in which 503 blacks and 506 whites were queried, found that for many younger blacks, saving for retirement is not a high priority. When asked about their most important goal for saving and investing, 41% of blacks said retirement, compared with 55% of whites. In 2007, the survey asked a slightly different version of the question, querying respondents about their biggest worry. Fifty-nine percent of blacks cited retirement, compared with 71% of whites.

“If you don’t grow up in a home where stocks are discussed then you are learning while doing,” says Mellody Hobson, president of Ariel Investments L.L.C. . “We must teach the history of the market and that despite crashes the stock market has outperformed all investments even real estate and bonds.”
About 45% of blacks under the age of 50 (compared with 26% of whites) say they want to retire by age 60. Among those older than 50, however, reality has set in: a far smaller group, 24%, of blacks and 9% of whites still plan to retire by age 60.

“Many blacks place a high value on sending the children to college but don’t plan for retirement,” says Toppin. “They have an idea about when they would like to retire, but they don’t take the steps they need. It is a competition between intention and reality.”

“The problem is that people don’t start saving for retirement early enough,” says Mellody Hobson, president of Ariel Investments L.L.C. “This is lifelong task, not something you start in middle age. The earlier people understand this, the better their chances of achieving their dreams.”

One area where both blacks and whites had a similar response was in reference to cashing out all or part of assets from a defined contribution plan, such as 401(k), permanently and with a penalty. Thirty percent of blacks said they had, while 28% of whites said they had.

About two-thirds of African Americans (compared with about half

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  • I certainly kick myself for opening an IRA so late in life, though Im only 37, I wish I had continued my interests with investments and things of that nature like I did in my early 20’s. Even the small amount Ive invested wont grow very much by the age of 60 so I intend to shift it all to my son when he reaches the age of 21.
    I recently checked on the growth of my retirement egg and it didn’t much of anything in 2008. Disappointing and I have no clue where to turn to receive a little more of a return so I can “feed the five-thousand” so-to-speak. (smile). But it was truly informative to read the survey of how blacks and investments compare to our white counter-parts. Thank you. Rhoda.

  • Margaret Barksdale

    I was laid-off from my job after a 29 year run. My job moved to Texas and I was not willing to follow it. I think the main reason we have not kept up with our counterparts is that we as a whole fail to live within our means. We buy our kids expensive toys, including the bling bling and we the adults do the same. It has been more than a year since I have been employed, but I am still doing ok and I have not had to touch any of my 401 or pension. I have almost always lived within my means and I have tried to teach this to my son. I recently opened a 529 account for my first granddaughter. Its important to me that I have set aside some money for her to start her education whether I am here or not when that time comes.
    We have to teach ourselves and our children that being the best dressed is not important any more. We do not have to always look like we belong on the cover of a magazine. What do we have in the bank? Just giving my opinion as to one of the reasons we are so far behind.

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