These Charts Explain How Racial Inequality Continues Into Retirement

You have a better chance of retiring in dignity in the United States if you are white.

African-American and Latino workers are far less likely than their white peers to have any savings in a 401(k) plan or other retirement account, according to "The State of American Retirement," a report released by the Economic Policy Institute on Thursday.

The report finds that among households headed by someone aged 32 to 61, just 41 percent of black families and 26 percent of Latino families had any retirement account savings at all, compared with 65 percent of non-Latino white families.

Savings rates are down for all three groups since 2007, but they have declined much more from peak levels in the early 2000s for black families and mid-1990s for Latino families, with Latinos experiencing the biggest drop. 

Those black and Latino families who have retirement account savings have far smaller amounts tucked away than their white peers. The median level of savings for white families with money in retirement accounts was $73,000 in 2013, compared with a median of $22,000 among both African-American and Latino families with such savings.

The EPI report uses the Federal Reserve’s Survey of Consumer Finance data from 1989 to 2013 to document the failure of the new generation of private retirement accounts, and mainly 401(k) plans, at providing the adequate retirement income once offered by pensions.

The report focuses roughly on the time period during which “defined contribution” plans, such as 401(k)s, began to replace pensions and other “defined-benefit” plans as the most common retirement plan offered by employers. “Defined contribution” plans are characterized by set contributions from employers, rather than set benefit amounts like those offered by “defined benefit” plans. They effectively shift risk onto the individual worker to manage investment choices, absorb market fluctuations and exercise judgment in timing withdrawals (which are permitted before retirement, but result in significant financial penalties).

The report also highlights the need for a more viable alternative to these plans in light of the declining value of Social Security benefits, another crucial source of retirement income. As a result of cuts made to benefits in 1983, including an ongoing increase in the full retirement age to 67, benefits will replace just 31 percent of a typical worker’s pre-retirement earnings by 2030 -- down from 38 percent in 2010.

Monique Morrissey, the EPI retirement policy expert who authored the report, told reporters on Thursday that the data on African-American families is particularly disconcerting, because when pensions were more common, participation in employer-based retirement plans was a rare area of relative equality with whites.

“Among people who still have pensions, [participation] is still fairly equal” between black and white people, Morrissey said.

Black workers are about as likely as their white colleagues to receive pension benefits if they work for the government, for example, where pensions remain relatively common.

Morrissey posits that the relatively low rate of African-American participation in today’s 401(k) plans and “defined contribution” retirement accounts may be due to the disproportionate number of African Americans working in low-paying jobs, which are now more likely not to offer such plans.

When they do have access to such plans, lower-income people may also find that a plan they must contribute to and manage individually is not worth the hassle, Morrissey claims.

“The same people who have seen their wages stagnate have been forced to take their money and shoulder the risk of retirement,” she said.

Indeed, nearly 90 percent of families in the top one-fifth of earners have retirement account savings, compared to less than 10 percent in the bottom one-fifth of earners.

In contrast with African Americans, retirement savings among Latinos has long been low.

“I don’t have good news for Hispanics,” Morrissey said. “They have always been behind in retirement savings.”

The low rates of retirement account savings among families of color, and relatively low balances in those accounts, is especially notable since it's one feature of the overall racial wealth gap.

The median net worth of white households was $141,900 in 2013, compared with $11,000 for black households and $13,700 for Latino households.

Social Security benefits and public assistance are not enough to erase the racial disparity in retirement account savings and overall household wealth once working families reach retirement age.

As a result, black and Latino seniors are more likely to live in poverty. Some 8 percent of non-Latino whites aged 65 or older lived in poverty in 2014, compared with 19 percent of African American seniors, and 18 percent of Latino seniors, according to analysis of census data by the Center for Global Policy Solutions.