Racial Disparities in Retirement Savings

A new study found that African-American and Hispanic workers are saving less for retirement than white and Asian employees

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African-American and Hispanic workers are less likely to participate in their employer’s 401(k) and, when they do participate, save less for retirement than white and Asian employees, according to a new study released today. This results in a smaller nest egg for African-American and Hispanic retirement savers—even after controlling for age and income.

While 77 percent of white workers and 76 percent of Asian workers participated in their company’s 401(k) or a similar retirement plan in 2007, only 66 percent of African-American employees and 65 percent of Hispanic employees did, according to the study of 3 million employees at 57 large U.S. companies by the nonprofit Ariel Education Initiative and human resources consulting firm Hewitt Associates. Those that did sign up for their company's 401(k) tucked away less of their salary for retirement. Asian workers managed to save 9.4 percent of their income in 2007, far more than whites (7.9 percent), Hispanics (6.3 percent), and African-Americans (6 percent).

That adds up to smaller nest eggs for African-American and Hispanic workers. For employees who earn between $30,000 and $59,999 annually, whites had an average account balance of $35,551 and Asians had tucked away an average of $32,590. That’s over $10,000 more than African-Americans ($21,224) and Hispanics ($22,017). The racial disparity is even more dramatic at higher pay levels. Hispanic employees who earn $120,000 or more annually have an average 401(k) account balance of $150,456, compared to $223,408 for white workers in the same pay range.

Investment strategies also varied by race. African-American workers were less likely than other employees to invest in equities. African-Americans generally had 66 percent of their 401(k) assets invested in the stock market, which is less than Asians (73 percent), whites (72 percent), and Hispanics (70 percent). African-Americans were also the most likely to take a 401(k) loan or hardship withdrawal from their 401(k) plan. Some 16 percent Asians had outstanding 401(k) loans in 2007, compared to 39 percent of African-American workers, 29 percent Hispanic employees, and 21 percent of white savers. Plus, 7.8 percent of African-Americans have taken 401(k) hardship withdrawals, versus just 2 percent of Asian workers – the group least likely to withdraw retirement funds early.