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Throughout our country’s history we have been reminded of the various gaps found between whites and African-Americans. History has brought many differences, however, today we acknowledge one racial gap that is rarely touched on (according to the Washington Post) and that is the retirement savings gap.
If minorities are less likely to have inheritances from family members than whites. They are also less likely to have less money to save as they would spend it on things such as a house. According to an analysis done by the Urban Institute, white families had over $100,000 more in average liquid retirement savings in 2013 than African American and Hispanic families.
When it comes to income, retirement experts note that the minority workers tend to make lower wages which results in them having less disposable income to save. In fact, The Urban Institute reported that the average white person earns $2 million over a lifetime, compared to $1.5 million for the typical African American and $1 million by the typical Hispanic.
One common solution for increasing retirement savings is increasing access to workplace retirement plans. According to the report, in 2013, 47 percent of white workers participated in such plans, compared with 40 percent of African American workers and 28 percent of Hispanic workers.
While some may interpret this as the reason behind the gap, it doesn’t explain it completely. According to senior fellow and economist at the Urban Institute, Signe-Mary McKernan points out that if it was the reason “African Americans, who have saved an average of $19,000, would be closer to matching the average $130,000 saved by white workers. Instead, their savings are closer to that of Hispanics, who have put away an average $12,000 in retirement accounts.”
McKernan explains that it suggests that some workers “may be held back by other factors, such as how much they save and how they invest those savings.”
So what should be done to help correct this problem?
One thing that would help them increase their savings is signing up for auto-escalation. This process would increase their rates of contribution to their retirement accounts by a couple percent each year until they reach a target saving rate.
Since whites are more likely to receive an inheritance from relatives, the institute recommends placing a cap on tax breaks like the mortgage-interest deduction and using the difference to introduce a more generous credit for first-time home buyers.
In the end, McKernan said that “If more workers automatically enrolled workers in retirement savings plans, that might make it easier for people to save more consistently.”