Black and white Americans pursue different retirement strategies

Jun 26 2006 by Nic Paton Print This Article

Black and white American workers have very different attitudes and expectations when it comes to retirement, a U.S study has concluded.

The ninth annual Black Investor survey by Ariel/Schwab has found that while more blacks workers than white participate in employer pension plans, a significant proportion of both groups are concerned these plans are in jeopardy.

More than a quarter (26 per cent) of black workers and almost a third (30 per cent) of white workers said they were worried about their retirement.

The survey of 500 black and 500 white workers earning more than $50,000 also found the former planned to retire earlier and were pursuing different strategies to the latter for their retirement years. This included investing in real estate or opening a business.

But investing in the stock market continued to lag among black workers. In fact, the percentage of higher income black workers with stock investments fell from a high of 74 per cent in 2002 to 64 per cent this year.

The number of higher income white workers with stock investments (83 per cent) was virtually unchanged since the first year of the poll in 1998.

An important difference between black and white retirement funding was that black workers are significantly more reliant on employer pensions than their white counterparts.

Black workers are significantly more reliant on employer pensions than their white counterparts

Of those surveyed, two-thirds of employed black workers, compared with about half of employed white, worked for organisations with a traditional pension plan.

This reflected the fact that far more black than white employees surveyed (44 per cent versus 25 per cent) worked for the government, which was more likely to offer a pension plan.

Almost 90 per cent of both groups surveyed considered themselves "very responsible" for preparing for their own retirement, but black workers were more likely than white to feel responsibility should also be shared by corporations (by a 38 per cent to 25 per cent margin) and by the government (by a 35 per cent to 18 per cent margin).

Large percentages of both black and white workers (50 per cent and 55 per cent) believed corporate pension funds would no longer exist in a decade, but far more black than white (65 per cent versus 37 per cent) agreed that "when corporate pensions go bankrupt, the government should be responsible for paying those people who were counting on their pensions".

All else being equal, black workers were twice as likely as white to believe government and corporations bore significant responsibility for ensuring Americans achieved a comfortable retirement.

Ariel president Mellody Hobson said: "All across America corporate pension funds are being frozen and many government pension systems are underfunded.

"It's a national crisis that will hit blacks especially hard because we've all bought into the promise," she added.

Despite uncertainty in the pension world, black workers were are optimistic they would retire early, with twice as many hoping to retire before the age of 60.

But for many black workers, retirement was just the beginning of a new phase of work.

While both groups had similar aspirations for retirement, three times the number of blacks versus whites (29 per cent versus 10 per cent) said they planned to start a business after they retired.

In addition, more black than white workers owned real estate other than their home (42 per cent versus 33 per cent) and of these, more black than white (58 per cent versus 48 per cent) said they expected these investments to help fund retirement.

Furthermore, twice as many black as white workers (34 per cent versus 16 per cent) said they were currently saving to buy real estate, start a business, or both.

But Lisa Toppin, a director of human resources and diversity programs with Charles Schwab & Co, warned: "Placing bets on real estate or starting a small business during your retirement years can be a risky proposition, since it doesn't leave much time to recover if things don't go as planned."

Black workers generally remained less worried about retirement, despite having far less money saved in retirement accounts (the median amount saved was $59,000 for black workers versus $93,000 for white).

Black workers also contributed less to their retirement accounts monthly (averaging $254 compared with $306 for white employees).

Finally, when asked about other retirement savings outside retirement accounts, the median amount for black workers who had such savings was $36,000, compared with $75,000 for their white counterparts.

Black workers also had family issues that compounded the gap. The survey found black employees received less financial support from their parents and carried heavier financial burdens related to aging parents, adult children as well as other relatives.

According to the survey, 27 per cent of black versus 18 per cent of white employees had an adult living in their home other than a spouse.

Only 21 per cent of black compared with 35 per cent of white workers had received an inheritance, and only 18 per cent of black versus 34 per cent of white expected to receive one in the future.

Black employees who were concerned about saving for their children's education or those who were worried about caring for elderly parents were considerably less likely to be saving even $100 per month for retirement.

Black workers who had extended family living with them were also much more likely than others to be worrying about their retirement.

Hobson concluded: "For all of the uncertainty surrounding retirement and the challenges unique to our community, it is inspiring that blacks remain positive.

"It is my hope we can convert this optimism into real wealth-building that empowers African-Americans and gives future generations the opportunity to succeed," she added.