Retirement's race problem: How employers can bridge the gap
There are enough challenges that come with saving for retirement — race should not be an added factor.
Yet that is the unfortunate truth for BIPOC employees, who have historically lagged behind their white counterparts when it comes to retirement savings rates and accumulated wealth. Data from the Center for Retirement Research found that white Americans have seven times more accumulated wealth than Black individuals, and in retirement, that translates to shocking differences in savings: the median white family has $188,200 in retirement savings, compared to $36,000 for Hispanics, and just $25,000 for Blacks, according to the Economic Policy Institute.
BIPOC workers face life-long challenges and barriers to achieving financial stability, due to racial disparities in earning potential, wages, a lack of generational wealth and other factors. For many, those imbalances have shifted their attitude away from long-term goals that simply feel out of reach and out of touch with their realities, says Aaron Harding, head of financial wellness for Morgan Stanley at Work.
"Black workers earn on average about 76 cents per dollar and Latinx earn 73 cents per dollar of their white colleagues," Harding says. "So when you're already at a disadvantage, that's going to create some challenges around how to make it day-to-day, and then extremely difficult for an individual who is trying to save for something that is 20 or 30 years down the road."
Adding to those financial divides are cultural differences that impact how BIPOC employees consider their long-term financial well-being, says Rommel Espinal, Latino community lead for the customer inclusion team at Fidelity Investments. While retirement is positioned as the ultimate goal for American workers, BIPOC groups aren't planning for or viewing this time with rose-tinted optimism — Espinal recalls that his own father said he'd retire "when I'm ready for my deathbed."
"It wasn't a destination that was appealing," he says. "It's understanding that retirement might not be the goal in the context that we position it in."
For BIPOC workers, their focus is more often on providing for multi-generational family members first, making the individual pursuit of accumulating wealth for yourself in retirement one that doesn't resonate with this group, Espinal says.
"Financial institutions position retirement as an individual goal, when in fact, [for BIPOC], you're retiring together for your family; there's caregiving involved and a lot of the elderly parents rely on these breadwinners," Espinal says. "It's more about, 'Where can I be tomorrow to enjoy the things that I want to do, that I can't do today? And how can I get there?'"
While employers have traditionally tackled retirement planning by offering 401(k) plans, access to those accounts is not equitable either. While 58% of white employees have access to a workplace retirement plan, that number drops to 47% for Black workers and 36% for Latinos, according to 2022 data from AARP Public Policy Institute.
"When we look at the history of systemic barriers that many BIPOC individuals have faced, that has impacted their access to various retirement benefits," Harding says. "The main benefit of a 401(k) for those who are trying to save but are not used to saving is that money comes right out of the paycheck and it's much easier to figure out how to manage what's leftover. Those benefits make it easy to get an individual on the path to financial freedom."
While these disparities are inextricably entangled with policies, laws and other discriminatory practices that have hobbled BIPOC workers for decades, employers are well-positioned to play a part in creating more equitable savings opportunities. And it doesn't have to revolve around retirement alone — financial wellness benefits that address education expenses, like student loan repayment plans, could chip away at the higher rates of student loan debt held by BIPOC employees, freeing up money for other priorities going forward. A 529 plan could also help current employees save for educational expenses down the line, helping the next generation get a few steps ahead, Espinal says.
"There's an emphasis on education in a lot of these communities," he says. "So think about the 529 plan as being able to build wealth that way. You're not spending cash to try to get a kid through school, or you're not putting in a financial burden out of the gate."
Employers can also continue boosting their support for caregivers, with supportive PTO policies and financial benefits. While it's estimated that up to 22% of the workforce has some sort of caregiving responsibility, according to the Rosalynn Carter Institute for Caregivers, the burden is higher for BIPOC workers, as 40% shoulder these added roles. BIPOC caregivers also tend to be younger and spend more hours per week on caregiving, compared to whites.
"I'm thinking very heavily about the caregiving that I'll be providing to my mother as she ages, given that we are of Caribbean descent, and that's a very prevalent thing," Harding says. "We have to shift the conversation to one where you kind of have to put the mask on yourself first. No one is trying to tell those communities to not provide for their family as they need to, but also help them to understand the impact that that's having on their ability to provide for themselves."
Harding's work with Morgan Stanley is focused on helping BIPOC workers connect with the benefits that are offered and understand how they work, while providing access to financial advisers to hone in on specific goals. This should be the work that all employers undertake when committing to providing financial wellness benefits, Harding says.
"We can teach people what something is, but there is a part of the population that's going to want someone to just tell them what to do so they can get started," Harding says. "For some, that will be using an electronic tool in a 401(k) that provides asset allocation guidance. For others, they're going to want to speak to an adviser. Different people interact with their money in different ways — providing a full range of offerings gives them the tools to save and prepare themselves for retirement and beyond."
Employers should also be cognizant of how they're marketing their benefits and services to employees — ensuring imagery and language resonates with BIPOC workers will make them more apt to engage.
"People like to see themselves in the marketing, and doing that in a culturally aware way is something organizations can do better in serving the BIPOC community," Harding says. "As we're discussing our loved ones, for example, in some communities, we call them elders and in other communities, we call them something else. Making sure that our communication reflects those differences between the various segments of the BIPOC community will reflect the things that are important to that group."
At Fidelity, Espinal stresses the importance of being involved in the communities they hope to serve. From employee resource groups specifically for Black and Latino workers, to external content and even philanthropy efforts directed at BIPOC groups, Fidelity has worked to create trust, and as such, can move the needle on getting these demographics engaged and invested in their financial products.
"We have dedicated portals with topics and financial advisers that show how Fidelity is contributing back to their communities," Espinal says. "For us to build trust, we have to show up in the places and spaces that are top of mind. We can't just talk benefits and gain trust. We have to build relationships and see that these institutions are truly invested in the growth of their community."
Fidelity's Invest in Me program, for example, has provided nearly $250 million in scholarship dollars for Black and Latino students. These types of programs help Espinal prove his team is invested in the financial well-being of their clients and customers, and is a good lesson for other employers hoping to reach these underserved groups.
"We can't service others if we don't look and think like them," Espinal says. "So we're starting to become much more of a diversified institution within, so that we can have the intelligence and the operational readiness to support this ever-changing diverse community."
While employers should assist employees in any way possible to save for the future, it's important to acknowledge that change won't happen overnight. But consistent efforts can make a difference in closing these gaps today, later helping employees and their families in the future.
"It is a solvable problem. It's solved by providing the appropriate benefits, it's solved by meeting those participant groups where they are with language and reflecting that we understand who they are and what their specific challenges are on any given day," Harding says. "To the extent that we can do that, we will be able to solve for this problem as time goes on."