More often than not, blacks and Latinos benefit little from the tax breaks and other policy initiatives aimed at bolstering retirement security because they typically have no money to save for retirement in IRAs and other vehicles outside the workplace, according to Diane Oakley, executive director of the National Institute on Retirement Security (NIRS), which conducted the study. In addition, they are much less likely than whites to have defined-benefit pensions, particularly outside of public sector jobs.
“Those are startling findings,” Oakley said. “The typical household of color has nothing saved in a retirement account.”
The report highlights the retirement security problems looming for a nation grappling with serious debt even as an aging population is demanding more services from government.
A broad sweep of policy makers, including the Bowles-Simpson deficit reduction commission and President Obama, have endorsed trimming future Social Security benefit increases as a way of reining in the national debt.
Charles Blahous, research fellow with the Hoover Institution and one of the trustees appointed to oversee Social Security and Medicare, argued that Social Security has the perverse effect of discouraging cash-strapped people from making a priority of retirement savings.
“A true answer to the problem would mean decreasing our society’s dependence on income transfer programs as a source of retirement income, and increasing the net amount of saving that we do,” he said in an e-mail.
Meanwhile, a host of state and local governments have been cutting back on pension benefits for public employees, saying they cannot afford their long-term cost.
Such public employee pensions, which typically pay a fixed benefit for life, have been of particular help to African Americans, who make up a disproportionate share of government workers. Similarly, trimming retirement benefits will disproportionately hurt the retirement prospects of black workers, even as they struggle with lower housing values and homeownership rates than whites.
Many policy makers calling for future Social Security increases to be curbed also support tax breaks and other policies to encourage people to save for their own retirements. But researchers have found that those breaks mainly accrue to married, well-educated workers with better-than-average wages.
Given that, an increasingly vocal cadre of policy makers, including Sen. Elizabeth Warren (D-Mass.), has pushed back against the argument for Social Security cuts. Given the retirement insecurity facing many Americans, they say, federal retirement benefits should be bolstered, not trimmed.
“There is a need for Social Security to be growing, not shrinking, because the other parts of the retirement stool have fallen apart,” said Monique Morrissey, an economist at the Economic Policy Institute, a liberal research organization.
Many Americans are on course to struggle financially in retirement even though the overall amount of money being set aside for retirement is growing. As of mid-2013, Americans had more than $20 trillion in retirement assets through 401(k)-type plans, traditional defined benefit pensions, IRAs, and annuities, according to a report released earlier this month by the Investment Companies Institute, which represents mutual funds, and the American Benefits Council, and the American Council of Life Insurers.
But that money, while growing, is not distributed equally, many argue. Most of the money is being saved by higher income Americans, while many working class and low-wage workers are struggling to even earn regular full-time hours at work.
The NIRS report said that among households headed by blacks and hispanics between the ages of 55 and 64, the average retirement savings account balance was $30,000. Among whites on the verge of retirement, it was $120,000. Meanwhile, investment and human resource firms typically recommend that retirees have assets worth anywhere from eighth to 11 times their annual wages in order to adequately prepare for old age.
“One of the big issues here is a gap in access,” Oakley said. “We have what is essentially a voluntary retirement system and what we know is when we look at minority households, their access to retirement plans on the job is much less than that for whites.”