Opportunity Beckons In African-American Retirement Savings

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When life insurers try to sell annuities and other insurance-based retirement savings products and services to African-Americans, one of the toughest competitors they face may be the mattress.

Only 18% of the all U.S. residents who participated in a 2001 retirement survey conducted by the Employee Benefit Research Institute, Washington, said they kept retirement savings “in a safe place at home or safe deposit box.”

But a companion survey found that 37% of the African-American participants reported keeping retirement savings in the form of currency.

Annual surveys commissioned by Ariel Capital Management Inc., Chicago, and Charles Schwab & Company, San Francisco, have revealed that even African-Americans with household incomes over $50,000 are painfully skeptical about the trustworthiness of financial advisors and financial investments.

Fifty-six percent of the African-Americans interviewed in 1999 agreed with the statement that investing in stocks is “just like gambling,” compared with 35% of the whites.

In 2000, 58% of the African-Americans agreed that financial advisors were more interested in making money than in giving good advice, compared with 45% of the whites.

Similarly, in 1998, 63% of the African-Americans described themselves as conservative investors, while only 53% of the whites described their investing style that way.

Kareim Cade, a partner at M.L. Garland Hill Agency, Detroit, questions whether African-American workers have retirement savings preferences that are really much different from those of white people with similar incomes, asset levels and educations.

“People want someone to sit down and explain things to them,” Cade says. “People want to retire and have a decent income.”

Market researchers say life insurers should make a serious effort to reach out to African-Americans because of one obvious demographic difference: the white U.S. baby boomers born between 1945 and 1964 did not begin their “baby boomlet” or “echo boom” until sometime after 1980, but African-Americans started their echo boom around 1970.

That means many African-American workers will still be in their prime in the 2010s, when white baby boomers born in the late 1940s and 1950s retire in droves.

In 2011, for example, only 56% of non-Hispanic white U.S. residents are likely to be between the ages of 16 and 64, but 67% of African-Americans will be in that age range, the Census Bureau predicts.

Advisors who can win African-American workers trust and offer the right mix of products should have plenty of opportunity to make sales: 66% of African-American participants in the EBRI survey said they could save $20 more per week for retirement without hurting their standard of living.

The EBRI sample consisted of workers over age 25 at all income levels, not just high-income workers.

The Ariel/Schwab survey results and the EBRI survey results suggest two possible marketing strategies: insurers and their advisors can try to persuade African-American retirement savers to take a little more risk in exchange for the potential of earning a higher yield, or they can appeal to conservative African-American savers with insurance-based products that offer fixed returns or minimum guaranteed returns.

The EBRI survey results and the Ariel/Schwab survey results suggest that agents might be able to increase sales to African-Americans either by persuading African-American consumers to take a little more risk, or by offering them insurance-based products that appeal to conservative investors by offered fixed returns or minimum guaranteed returns.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 10, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.