RETIREMENT PREPARATION: DIFFERENCES BY RACE AND ETHNICITY
By Andrew G. Biggs
he murder of George Floyd is one of many recent events that have led to a renewed focus on pervasive racial inequalities in the
United States. The social and economic inequalities that divide Whites, Blacks, Hispanics, and other races during their working years carry through into retirement, with White retirees possessing dramatically higher incomes and assets than retirees of other races. Total retirement incomes—which include Social Security benefits, pensions, the drawdown of retirement account balances and other savings, and welfare benefits paid by governments—reflect the inequality of incomes between races that are seen throughout Americans’ working years. Investments approach uses a portfolio of stocks and bonds, but there are other approaches that could be better suited to an investor’s planning goals. It is less clear, however, how policymakers should interpret these patterns. One possible explanation is that Black and Hispanic households fail to save adequately during their working years, due to a lack of access to retirement plans, lower levels of financial literacy, or other reasons. Another possible explanation is that Black and Hispanic households do tend to save adequately, whether benchmarked by theoretical economic models or practical financial planning tools, but that their lower levels of lifetime earnings result in low incomes both while working and in retirement. Policy responses to the former explanation may focus on expanding opportunities and incentives to save, while policy responses to the latter explanation may focus on changes to Social Security or other retirement programs to better protect against poverty in old age. Neither category of policy responses is exclusive, though, nor does either rule out a range of other policies designed to equalize differences in preretirement earnings between different races. Nevertheless, clarifying the reasons for low incomes in retirement for Black and Hispanic households creates a more accurate picture of the challenges facing different groups of Americans and the policies that might best help them surmount these challenges.
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About the Author
Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits. Biggs holds a bachelor’s degree from Queen’s University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.