Racial wealth gap widens as many workers of color lack retirement savings • Oregon Capital Chronicle:
The racial wealth gap is widening as many workers of color go without retirement savings.
The median wealth gap between Black and Hispanic families and white families expanded by about $50,000 between 2019 and 2022, according to research from The Pew Charitable Trusts. The typical white family had $240,000 more wealth in 2022 than the typical Black family and $223,000 more than the typical Hispanic family.
Much of that disparity is caused by white families saving more for retirement than members of other racial and ethnic groups, Pew said.
So what? Different people spend their money differently. While I think retirement savings is important, if someone else doesn’t think it’s as important for them, they get to make that choice.
The only question here in terms of racial demographics is whether those communities have the information about retirement and retirement savings so that people are making informed decisions. If so, how they choose to spend their money is their business.
To help close the racial wealth gap and ensure more people save for retirement, Pew has been advocating for the creation of state and city-sponsored automatic retirement programs to help cover the more than 50 million Americans who don’t have retirement plans through work.
There are IRAs and Roth IRAs available to anyone with 1099 or W-2 income. No racial qualifications whatsoever.
…automatic Individual Retirement Accounts, or IRAs, have been growing in popularity: More than 1.2 million workers across the 15 states with active programs have collectively saved $3 billion for retirement through state-sponsored plans, according to tracking from the Georgetown University Center for Retirement Initiatives.
So, on average, each worker has saved $2,500. Let me tell you how far that’s going to get someone in retirement. I can’t believe this is being touted as a success.
Minnesota recently launched its auto-IRA program that aims to cover workers at all employers with five or more employees. Hawaii’s program is set to launch this year, with Washington state starting its plan next year.
Those programs often capture lower-income workers who tend to be Black and Hispanic, said John Scott, director of Pew’s retirement savings project.
“I think these programs are doing what they’re supposed to do, which is really reaching those workers who have their access to retirement benefits cut off just by virtue of where they work,” he said.
Who is cut off? Anyone with job income can start their own IRA or Roth IRA for free at virtually any brokerage (Fidelity, Schwab, etc.).
Auto-IRA programs require most employers without retirement offerings to set up payroll deductions for their workers, but do not require any employer match. Employees are automatically enrolled, but can choose to opt out, leading to higher participation rates than if workers were required to opt in to save with the plans.
There’s nothing wrong with auto-IRA programs, though noticeably absent is any talk of state implantation costs. How much are taxpayers paying to make this marginally successful program a reality?
About two-thirds of employees stay with it and about one-third opt-out, so that’s better than nothing if we think personal retirement savings the right way for people to spend their money.
But a lot of the people themselves don’t seem to think it is:
In addition to a formal survey, Pew hosted an online discussion to ask Black, Hispanic, Asian American/Pacific Islander, and Native American/Indigenous workers about their views on wealth. Many of those workers did not view wealth in terms of the classic definition of assets minus debts. They instead prioritized financial security, which they saw as a more important goal than simply building wealth.
“What came through in these comments was that wealth to them is really security, and security in the sense of I have some certainty in my life about the income that’s coming in and the bills that have to be paid,” Scott said. “And I don’t really have to wonder if I’m going to have enough at the end of the month after paying off everything that I owe.”
This is just people prioritizing different things, which is what economic freedom (aka capitalism) is all about. We all may lament our choices later—true of everything in life, really—but as long as we are free to make those choices, I think that’s sufficient.