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Study Finds Racial Disparity in Retirement Savings

Blacks save less overall than whites, contribute less to plans

October 17, 2008

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The recent stock market crash has lots of Americans thinking more about retirement and how to adequately fund it. While most Americans are now convinced they should do more to plan for their golden years, a new survey finds a racial disparity in how they're going about it.

Blacks are on equal footing with whites when it comes to accessing and enrolling in employer-sponsored defined contribution plans, but save far less each month and have a considerably smaller nest egg than their white counterparts, according to the 11th annual Ariel/Schwab Black Investor Survey.

The survey of 503 blacks and 506 whites with household incomes of at least $50,000, finds about nine in ten of both blacks and whites who are working have access to a defined contribution plan such as a 401(k); and of those, about 90% of each group contribute regularly.

However, the median monthly amount that blacks contribute to their 401(k) plan is $169, while whites contribute about 50% more, or $249 each month. As a result, the median total household savings for retirement reported by black respondents is $53,000, in contrast to whites at $114,000.

This year's survey also found that for many younger blacks, saving for retirement is more of a dream than a priority. Although 45 percent of blacks under the age of 50, compared with 26 percent of whites, say they want to retire by age 60, they are half as likely to cite retirement as their most important goal when saving and investing, after controlling for income, education, age and other key demographics. Among those older than 50, however, reality has set in: a far smaller 24 perecent of blacks and nine percent of whites still plan to retire by age 60.

"The problem is that people don't start saving for retirement early enough," said Mellody Hobson, Ariel President. "This is lifelong task, not something you start in middle age. The earlier people understand this, the better their chances of achieving their dreams."

The survey also found that with some help from employers, all employees, but particularly blacks, would be likely to ramp up their monthly 401(k) savings. About two-thirds of blacks (compared with about half of whites) say they would increase contributions to their retirement plan if employers provided access to financial advisors, seminars about retirement investing, and/or education about the features of the plan.

"Employees want and need help with retirement investing, and employers have an opportunity to make a real difference," said Lisa Toppin, vice president of employee development and inclusion for Charles Schwab. "Imagine how helpful seminars would be, for example, for younger black employees who have the least realistic expectations but also the best opportunity to start charting a course toward a comfortable retirement."

This year's findings show that 62 percent of higher income blacks own stocks or mutual funds versus 82 percent of whites. Over the last 11 years, black stock ownership has fluctuated between last year's low of 57 percent and a high of 74 percent in 2002. Over the same period, white stock ownership has consistently hovered around 80 percent.

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