Retirement confidence remains high among minorities, despite the fact that they are saving less than they were three years ago.
Seventy percent of minority workers are confident they will live comfortably throughout their retirement years, on par with the rest of America, according to the Employee Benefit Research Institute survey "Minority Retirement Confidence."
However, retirement savings rates are falling among minorities. Only 48% of African Americans said they have enough money saved for retirement, down from 62% in 2003, when the survey was last conducted. Forty-one percent of Hispanics stated they are prepared, down from 60% in 2003. EBRI conducted telephone interviews among 500 African Americans and 504 Hispanics over the age of 25 this year.
Minorities tend to be less sophisticated financial investors and unfamiliar with financial basics, said Mathew Greenwald, president of research and consulting firm Greenwald & Associates of Washington.
"The industry has to realize how underserved this segment of the market is," said Keith Newcomb, a financial planner and wealth manager with Full Life Financial in Nashville, Tenn.
"It can be very hard to engage the minority community," said Mark McClanahan, a certified financial planner with Baker Financial in Arlington, Texas. There are culture differences, and minorities struggle to learn financial basics and the importance of savings, he said.
Fifty-four percent of minorities have less than $10,000 in savings and investments, compared with 35% of the workforce. Among African Americans, 29% have $10,000 to $50,000 saved, 7% have $50,000 to $100,000 saved and 10% have $100,000 or more saved, which is the same percentage for Hispanics surveyed.
Seventeen percent of Hispanics have $10,000 to $50,000 saved, 11% have $25,000 to $50,000 and 7% have $50,000 to $100,000 stored away.
Many workers are not saving enough because they do not know how much money they need to accumulate to maintain their desired standard of living throughout their retirement, the report states.
Although most future retirees will finance their retirement differently than current retirees, most minority workers still believe that their retirement funding will come from traditional income sources.
Forty-one percent of African Americans believe that Social Security will fund retirement, 39% stated a defined benefit pension plan would, 37% cited an employer-sponsored retirement savings plan, and 36% believe that employment will be a major source of income in retirement. Hispanics reported similar answers.
Many minorities saw their parents rely upon Social Security and pension funds to fund retirement, and they were once very reliable options, but they are not as dependable today, McClanahan said.
"It all boils down to education," said Libby White, director of operations at the International Foundation for Retirement Education. InFRE is working with Texas Tech University in order to teach students at a young age the importance of retirement savings and 401(k) plans, she said. InFRE is looking to partner with historically black colleges and universities in the future.
The industry needs to reach out to minorities and hold educational seminars, McClanahan said, adding that civic and faith-based organizations could be a place to start.
Advisers can play a large role in helping to educate minorities. Especially minority advisers, who should target minorities as clients, as they might feel more comfortable, said Betty Meredith, director of education and research at InFRE.
There are still many misconceptions about retirement plans. Some people think that a 401(k) plan is a lifetime fund for retirement, similar to a pension fund, Meredith said. In addition, "minorities tend to have more family-oriented cultures, and their confidence could be affected by that," she said.
Forty-one percent of Hispanic workers said they have saved money for retirement. However, only 34% stated they or their spouse are currently setting aside money for retirement. Native-born Hispanics are twice as likely as foreign-born to have saved for retirement, 62% and 31%, respectively.
Lower-income groups have struggled because typically they do not have a lot of discretionary income and were not taught the importance of savings, McClanahan said.
Forty-eight percent of African Americans have saved money for retirement, and 45% are currently saving.
As automatic enrollment in 401(k) plans increases, more employees will be contributing to their retirement plan. Employers should think about educating and stressing the importance of savings to minority workers because they might be the most likely to opt out, said Jack VanDerhei, co-author of the EBRI report and a professor at Temple University in Philadelphia.
Not only minorities, but many individuals tend to underestimate how much money they will need for retirement, the cost of inflation and longevity, Greenwald noted. People often mislead themselves into a false sense of security, McClanahan added. The whole key is starting a financial plan, he said.
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