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Obstacles to Saving for Retirement Among Low-Income Workers and Workers of Color

Obstacles to Saving for Retirement Among Low-Income Workers and Workers of Color. Presentation by Wilhelmina A. Leigh Joint Center for Political and Economic Studies National Press Foundation Washington, DC 2 June 2009. Organization Of Presentation. Definitions Macro “Obstacles”

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Obstacles to Saving for Retirement Among Low-Income Workers and Workers of Color

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  1. Obstacles to Saving for Retirement Among Low-Income Workers and Workers of Color Presentation by Wilhelmina A. Leigh Joint Center for Political and Economic Studies National Press Foundation Washington, DC 2 June 2009

  2. Organization Of Presentation Definitions Macro “Obstacles” Micro “Obstacles” Current Concerns How to Address “Obstacles”

  3. Who Are Low-Income Workers? • Low income workers are the more than 7.5 million people 16 years and older in 2007: • … who were in the labor force for 27 weeks or more, and • … earned income below the federal poverty level. • Low-income workers were 5.1% of all persons in the labor force for 27 weeks or more in 2007.

  4. Who Are Low-Income Workers (cont’d)? • Racial distribution of the low-income labor force (2007): • 71.2% white • 21.4 % black • 3.5% Asian • Hispanics (who can be of any race) were 28.4% of low-income workers (2007).

  5. Low-Income Workers Among Workers of Color • The following percentages of the total labor force of each racial/ethnic group had income below the federal poverty level (2007): • 4.4% for whites • 9.7% for African Americans • 3.8% for Asians • 10.5% for Hispanics

  6. Why Does Saving for Retirement Matter? • Distribution of weight on the retirement income stool has shifted among its three legs (Social Security, employer-sponsored pensions, and private savings and investment). • Most workers today and in the future will rely more on private savings and investment than on the other legs of the stool.

  7. Obstacles to Saving for Retirement Among Low-Income Workers and Workers of Color • Both groups of workers face obstacles to saving or accumulating assets for any purpose due to: • … limited or no disposable income, and • … competing uses for any money saved • Hierarchy of Saving: Saving for retirement gets lower priority than saving for more immediate needs, such as for a car to provide transportation to work.

  8. Historical Macro Obstacles: Workers of Color • African Americans: • asset deprivation during slavery • Jim Crow era discrimination • American Indians/Alaska Natives: • land loss and societal disruption • isolation on reservations with limited opportunities for employment or building assets

  9. Historical Macro Obstacles: Workers of Color (cont’d) • Asians • asset deprivation during WWII internment • limited employment and asset-building opportunities, especially if immigrants and undocumented • Latinos or Hispanics • employment as farm laborers • limited asset-building opportunities, especially if immigrants and undocumented

  10. Results of Historical Macro Obstacles to Retirement Saving Skewed distributions of assets held by low-income people and people of color that have been transmitted intergenerationally Residential patterns that contribute to further skewing of asset distribution Gaps in total value of assets or net worth held by low-income people and people of color

  11. Macro Obstacle: Residential Patterns • Low-income people and people of color often live in isolated locales, bereft of mainstream financial institutions. • Residents of these locales often are targeted by financial intermediaries whose products limit and distort asset accumulation and thereby constitute obstacles to saving for retirement. • Subprime mortgage loans • Payday lending

  12. Macro Obstacle: States of Residence 2007-08 Assets and Opportunity Scorecard • People of color are more likely than are white people to live in states whose asset building outcomes for low-income people are ranked low: • Highest ranked states: HI, IA, ME, MA, MN, MT, NH, VT, WI, WY • Lowest ranked states: AZ, AR, GA, KY, LA, MS, NV, NM, NY, TX

  13. Median Family Net Worth or Wealth, 2004 and 2007 2007 Survey of Consumer Finances

  14. Macro Policy Obstacle The most widely used programs to help low-income people build assets—such as individual development account (or IDA) programs—target shorter range needs such as auto purchases or home purchases, rather than saving for retirement.

  15. Macro Policy Obstacle (cont’d) • The most readily accessible vehicles for retirement saving are provided through employers (e.g., 401(k), 403(b) plans). Low-income workers and workers of color often are ineligible to use these vehicles either because: • … their employers do not offer them, or • … they are part-time or contract employees

  16. Participation in Employer’s non-Social Security Retirement Plan, by Race/Ethnicity, 2007 (Percent) 2007 EBRI Minority Retirement Confidence Survey

  17. Micro Obstacles to Saving for Retirement Knowledge Intentions and Expectations Behaviors

  18. Micro Obstacle: Knowledge • Financial Literacy • Levels are low. • Few states mandate school instruction. • Unbanked families • … one study estimated 8% of all families • … another study estimates more than 25 million households • … disproportionately likely to be nonwhite or Hispanic, and to have low net worth or wealth

  19. Micro Obstacle: Intentions and Expectations 2005 JC Poll • African Americans • Nearly 2 of every 5 (or 38%) say they want to save every month but don’t have enough money. • Persons with incomes of $35,000 or less are more likely to report wanting to save but not having the money to do so (53.9 %).

  20. Micro Obstacle: Intentions and Expectations • African Americans and Hispanics differ from workers of All Races in expectations about major sources of retirement income: • … more likely to expect Social Security or an employer-sponsored pension to be a major source • … less likely to expect personal savings and investment to be a major source

  21. Social Security as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, and 2007 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data)

  22. Employer-Sponsored Pension as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, and 2007 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data)

  23. Personal Savings and Investment as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, and 2007 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data)

  24. Micro Obstacle: Behavior 2007 EBRI Minority Retirement Confidence Survey All workers (60%) are more likely than either African American workers (45%) or Hispanic workers (34%) to “currently save for retirement.” All workers save a greater amount for retirement than either African American workers or Hispanic workers.

  25. Amount Saved for Retirement by Race/Ethnicity, 2007 * Percents do not sum to 100 due to rounding. 2007 EBRI Minority Retirement Confidence Survey

  26. Micro Obstacle: Behavior (cont’d) 2005 JC Poll • African Americans • Only 51% reported having money in savings accounts, CDs, or money market accounts. • More than 8 of every 10 do not have any money invested in bonds. • 2 of every 3 did not own stocks or mutual fund shares, although ownership increased with income • 2% of those with income of $15,000 or less • 16% of those with income between $15,000 and $35,000 • 75% of those with income of $90,001 or more

  27. Micro Obstacle: Behavior (cont’d) 2005 JC Poll • African Americans • 24% invested in IRA or Keogh plan, but • 3% of those with income of $15,000 or less • 9% of those with income between $15,000 and $35,000 • 55% of those with income of $90,001 or more

  28. Micro Obstacle: Behavior (cont’d) 2008 U.S. Diversity Markets Report (Synovate)

  29. Micro Obstacle: Behavior (cont’d) • For low-income workers and workers of color who are immigrants: • Remittances to country of origin may be obstacle or boon. • Non-mainstream sources of financing (such as sou sou, san, sociedad, ajo, box) play a role but have limitations.

  30. Current Concerns Subprime market fallout may result in more skewing of asset mix among low-income workers and workers of color. Employer changes to 401(k) plans may lessen likely saving therein. It’s difficult to assess the magnitude of recent financial losses and their impact on retirement savings by race and ethnicity .

  31. How to Address “Obstacles” Increase disposable income Change asset mix of savers Limit place-based deterrents to asset building Change state asset building policies Enhance knowledge about ways to save for retirement Change expectations about sources of retirement income

  32. Contact Information Wilhelmina A. Leigh Senior Research Associate Joint Center for Political and Economic Studies 202-789-3529 (phone) 202-789-6369 (FAX) wleigh@jointcenter.org

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