The earnings and wealth gaps between whites and minorities are enormous. How do these disparities translate to retirement preparedness?
A new report from the Center for Retirement Research at Boston College looks at trends in retirement security by race and ethnicity.
Before looking at retirement preparedness, the report first looks at the levels of wealth and earnings for white, black and Hispanic households.
In 2007, the median net wealth for whites was $183,100 compared to $39,000 for blacks and $59,300 for Hispanics. This gap increased further by 2016 with the median net wealth for whites at $132,100 compared with $18,300 for blacks and $24,400 for Hispanics.
According to the report, white households now hold roughly six times as much wealth and earn almost twice as much as minority households.
The report then assesses the retirement preparedness of today’s working-age households by using the National Retirement Risk Index (NRRI).
Retirement preparedness is typically defined as the risk of not being able to maintain a household’s pre-retirement standard of living — a risk the NRRI is designed to capture, according to the report.
The NRRI is calculated by comparing households’ projected replacement rates — retirement income as a percentage of pre-retirement income — with target replacement rates that would allow them to maintain their standard of living. These calculations are based on the Federal Reserve’s Survey of Consumer Finances, a triennial survey of a nationally representative sample of U.S. households.
Overall, according to the report’s analysis, retirement security has declined in the wake of the global financial crisis and ensuing recession. Despite an extended period of recovery, half of households ages 30 to 59 are at risk of inadequate retirement income compared with 44% in 2007.
The report then analyzes how the percentage at risk varies by race and ethnicity in 2016, and finds the gap here is smaller than the earnings and wealth disparities.
In 2016, according to the report, the share of whites at risk in retirement was 48% vs. 54% for blacks and 61% for Hispanics.
According to the report, the retirement gap is smaller simply because minorities have a lower pre-retirement standard of living to maintain.