Retirement Savings Analysis: African-American Women

Americans are wedding less frequently, and the ones that are getting married are not staying married for as long as their previous generation.  This can affect the way retirement is saved and collected, putting many African-American women at risk of running out of retirement money.  

Social Security

Spousal benefits for Social Security is often how widows make ends meet.  However, for African-American women 1 in 3 will not be eligible for this benefit either because they have never married or they were married for less than 10 years.  This rate is double what it is for other women.  

The gap doesn’t seem to be getting any smaller.  It is projected that by 2040, the number of African American women who will be out of the dual entitlement benefits will decrease by 35 percent.

Women, in general, can expect to see a loss of Social Security spousal benefits, either because they have never been married or not married long enough.  Women born between 1936 and 1945 who have never married by age 70 is around four percent.  Compare that to 10 percent of women born from 1966 to 1975 who will not have married by age 70.  

Marriage Helps Retirement Savings

In a 2010 study, 71 percent of married couple between the ages of 50 to 64 had retirement savings, compared to only 48 percent of single women.  On average, married couples had $122,560 in savings while single women only had $32,800.  This number drops even more for single African-American women.

The African-American Savings Gap

But marriage does not fix anything if a woman is African-American.  In 2013, the average white married couple had $130,000 in liquid retirement savings from places such as cash, 401(k), 403(b), and IRAs.  The average African American had only $19,000 in liquid savings.  This large gap continues to grow.  

The average overall wealth of white families in 2013 was more than half a million dollars higher than the average African American family.  By the time these same two families reach 60, the white family will have over $1 million more in wealth that the African American family.

Economists have studied the reasons this gap is so wide and continues to widen.  Some of these reasons include:

• The pay gap
• The wealth gap
• Larger gifts and inheritances in white families
• Loans taken out at higher interest rates
• Housing value
• Choosing to pay off debt instead of saving for retirement
• Financial literacy

The Pay Gap

A decline in unionization, low minimum wage, and slow enforcement of anti-discrimination laws are some of the reason thought to contribute to the wage gap for African Americans.  Even when comparing equal talents or skills, African American workers earn an average of $7 per hour less than other races.

The Wealth Gap

According to the Federal Reserve’s Survey of Consumer Finances, the average white household had 13 times more in net wealth when compared to the average black household.  When a typical white family has about one month’s worth of savings in liquidity, a typical black family only has enough for five days.

This same report showed that from one African American generation to the next, the number of large gifts or inheritances left to surviving family members is significantly smaller than their white counterparts.  This means that for every subsequent generation, the gap continues to widen.

Other Reasons for Not Saving

Not all jobs provide access to 401(k) or 403(b) accounts.  This puts a significant number of African American workers at a disadvantage.  Even at jobs where these plans are available, the black community as a whole tends not to contribute at the same rate as their white counterparts.  Taking out loans at a higher interest rate is also prevalent.  Finally, home ownership and home equity built up for African Americans age 47 to 64 is typically zero.

The reason for these lower numbers is the mindset of this particular group.  When surveyed, African American employees who have access to employer-sponsored retirement accounts but do not contribute the maximum amount toward retirement state that paying down their current debt is a higher priority than saving towards retirement.

Changing the Gap

In order to close the retirement gap, African American women need to increase their financial literacy.  With only one in ten African American working with a financial planner, financial education in many households does not exist.  One of the challenges is increasing the level of financial education.

Investing in Stocks

African Americans often shy away from the stock market.  Because of a penchant toward low- or no-risk investments, even if they save for retirement, their return on investment is not as great as the groups that invest in the stock market.  Without diversification, any discretionary income will not grow as quickly.

What African American Women Should Do

If available at the workplace, every effort should be made to invest the maximum amount into a 401(k) or 403(b).  In addition, learning as much as possible about retirement investment options will help anyone become a better overall investor.
When presented with the continuing problem of the increasing retirement gap, employers could play a bigger role in the education process.  Providing financial advice on issues such as student loan debt, home ownership, and multigenerational families is needed.  With knowledge comes power.  African American women have the power to retire with enough savings to live comfortably during retirement, but steps must be taken to help them learn how to do this.