Black and Latino workers, along with those of other or multiple races/ethnicities regularly have significantly less money in retirement savings than white workers do. This disparity results in a less secure retirement, even though they often work longer hours and careers. The retirement savings gap results, in large part, from many people of color having less access to retirement benefits at work. The overwhelming majority of people – more than 90% — will participate in a retirement plan at work if they are eligible, regardless of their racialized group. Yet, white workers are often more likely to work for employers that offer retirement benefits, and are also more likely to hold stable, full-time jobs that qualify them for these benefits compared to Black and Latino workers, as well as Native Americans, Alaska Natives and Pacific Islanders.
A recent report that I co-authored for the Society of Actuaries summarizes the latest data on retirement savings by race and ethnicity, primarily using data from the Federal Reserve’s Survey of Consumer Finances 2022 (SCF) and the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) 2021/2022, which show individuals’ retirement savings in 2020 and 2021. The two data sources tell remarkably similar stories. These sources provide a consistent narrative, showing the significant role of employer-sponsored retirement benefits such as a 401(k) plan or a DB pension in the racial retirement savings gap. Differential access to employer-sponsored retirement benefits accounts for approximately half of the retirement savings gap between households with a white householder, on the one hand, and households with a Black and Latino householder, as well as those with a householder of other or multiple races or ethnicities, on the other hand. If Black and Latino workers, as well as workers of other or multiple races, had the same access as white workers to a retirement savings plan at work, the retirement savings gap would be 40% to 50% smaller.
It is important to dispel the argument that differences in retirement benefit participation among racialized groups stem from individuals deciding to participate at systematically different rates. This is not supported by the data. More than 90% of those who were eligible for their employer’s retirement benefits in 2020 and 2021 participated in those retirement benefits in all minoritized groups. For example, 43% of Latino wage and salary workers, 25 years old and older were eligible for a retirement benefit at work, and 40% participated, resulting in participation rate of 93% (see Figure below). In comparison, 62% of white workers were eligible, and 59% participated – a participation rate of 95% (see Figure below). Even if Latino workers had participated at a higher rate than white workers, only 41% would have a retirement plan instead of 40%. Thus, ensuring widespread and equal access to a retirement plan between racialized groups is key.
Groups Participate at Similar Rates, when They Have Access to Retirement Benefits
Calculations Based on U.S. Census Bureau, Survey of Income and Program Participation
The industry in which individuals are employed significantly affects access to retirement benefit plans. In the private sector, participation among wage and salary workers 25 years old and older varied from 37% for Latino workers to 59% for Asian workers. Additionally, 56% of white private sector workers participated in a retirement plan at work in 2020 and 2021. This means that white workers were 53% more likely to participate in a retirement plan at work than Latino workers. In contrast, retirement plan coverage in the public sector was much higher, ranging from a low of 62% for Latino workers to a high of 75% for white workers in 2020 and 2021. White workers were 22% more likely to participate in a retirement plan at work. The public sector provides more consistent access and thus is a key channel towards greater racial retirement equality. Most workers work in the private sector, though, where access to and participation in retirement savings plans varies significantly by race and ethnicity. And, many racialized groups, such as, Latinos are underrepresented in the public sector.
Education also plays a critical role in participation rates. Workers with a college degree are much more likely to participate in a retirement plan at work, but most Black and Latino workers and workers of other or multiple races and ethnicities, do not have a college degree amid a highly segregated educational system. Among those without a college degree, 31% of Latino workers participated in a retirement plan at work, while 48% of white workers did. This is a gap of 56% between white and Latino workers, who almost always have the lowest participation rates.
The data show variations between and within subpopulations. Some subpopulations, such as public sector workers, have higher participation rates than other subpopulations, such as private sector workers. Black and Latino workers, as well as workers of other or multiple races, are generally less likely to be eligible for retirement benefits at work, even when they work for employers that offer such benefits.
These two variations reflect two major obstacles towards achieving racial retirement savings equality. White workers are more likely to work in well-paying jobs with stable benefits and career paths than is the case for Black and Latino workers as well as for workers of other or multiple races and ethnicities. They are more likely to have college degrees, access to social networks and thus to be hired into these jobs. Moreover, white workers are more likely to become eligible for benefits at work because they often work in more stable occupations or are more likely to work full-time within the same industry or employer, which increases their likelihood of qualifying for benefits. Many workers of color face dual obstacles in getting access to retirement savings plans: securing employment in industries with favorable jobs and then becoming eligible for benefits.
Policymakers concerned with the racial retirement savings gap need to ensure equal access to retirement benefits on a broad basis. People need to have access to portable benefits while working, regardless of their workplace, and to become immediately eligible for those benefits, regardless of their employment conditions.