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date: 18 January 2022

# Race, Ethnicity, and Retirement Security in the United States

• Dania V. FrancisDania V. FrancisEconomics Department, University of Massachusetts Boston
•  and Christian E. WellerChristian E. WellerDepartment of Public Policy and Public Affairs, University of Massachusetts Boston

### Summary

U.S. workers need to save substantial amounts to supplement Social Security, a near-universal but basic public retirement benefit. Yet wealth inequality is widespread by race and ethnicity, so that households of color often have less wealth than White households. This wealth inequality is reflected in a massive retirement savings gap by race and ethnicity, so that households of color often have less wealth than White households. In 2016 Black households had a median retirement savings account balance of $23,000, compared to$67,000 for White households. Many people of color will face substantial and potentially harmful cuts to their retirement spending. They may, for example, find it more difficult to pay for housing or healthcare.

This retirement gap is the result of several factors. Households of color, especially Black and Latino households, are less likely to receive large financial gifts and inheritances from their families. They have less wealth decades and often centuries of discrimination and exploitation in society. They thus have to save more for retirement on their own. Yet Black, Latino, and many Asian American workers face greater obstacles in saving for retirement than is the case for White workers. These obstacles are especially pronounced in retirement savings accounts. People of color have less access to these retirement benefits through their employers, contribute less due to greater concurrent economic risks, and build less wealth over time due to less stable earnings and more career disruptions. As a result, people of color often use home equity as a form of retirement savings, but they also face more financial risks associated with homeownership. In addition, many people of color face higher costs during retirement, especially higher healthcare costs and more widespread caregiving and financial responsibilities for family members.

The coronavirus pandemic has exacerbated many of the obstacles and risks associated with retirement saving for people of color, who experienced sharper increases in unemployment and more widespread healthcare challenges due to greater exposure to the virus. Many Black, Latino, and Asian families had to rely more heavily on their own savings during the pandemic than was the case for White households.

A range of public policies have been proposed or implemented, especially at the state level, to address some of the obstacles that people of color face in saving for retirement. Retirement researchers will need to investigate whether and how the pandemic has affected racial differences in retirement security as well as analyze how new policy efforts could shrink the racial differences in retirement wealth.

### Subjects

• Labor and Demographic Economics
• Public Economics and Policy

### Overview: Lower Savings and Higher Costs Result in Greater Financial Insecurity For People of Color

In theory, retirement security follows from a lifetime of work and savings. People save and contribute to public retirement benefits while they work. They then are able to maintain their expenses and avoid poverty and material hardship, such as an inability to pay for necessary healthcare, as they get older.

Yet retirement inequality has also increased since the 1990s (Munnell et al., 2021). The gap in retirement security between those who are more and those who are less likely to face a secure retirement has widened in particular by race, ethnicity and gender. In 1983, less than one-third of working households faced a high risk of having to make painful spending cuts in retirement, while this applied to almost half of working households in 2019 (Munnell et al., 2021).

People of color, especially African Americans, Latinos, and many Asian Americans, face an insecure retirement. They struggle in their later years because the combination of Social Security benefits, employer-sponsored pensions, and private savings is not enough to cover expenses. As a result, many older households of color live in poverty and experience material hardships.

The growth of retirement income security follows from several trends that have exposed people of color especially to a wide range of economic risks that make it harder to save for retirement. African American and Latino workers often face labor market discrimination and occupational steering toward jobs with low wages, unpredictable schedules, and few health and retirement benefits (Ajilore, 2020; Golden, 2015; Weller, 2019). Many people of color also face financial market and housing discrimination that increases the costs and reduces the returns to homeownership, for example, which is one key venue for households to build wealth for their retirement (Perry et al., 2018; U.S. Department of Housing and Urban Development, 2013). Also, many people of color face discrimination, biases, and lack of access to quality healthcare, which not only increases their healthcare costs, especially in old age, but also makes it harder to save for retirement. Moreover, many households of color face higher costs for education, which also makes it more difficult to put money away for the future (Houle & Addo, 2018).1 Finally, women of color in particular take on greater caregiving responsibilities for multiple generations in their families than is the case for White households. Absent a universal and affordable caregiving infrastructure, caregiving disrupts the careers and earnings of many Black, Latina, and Asian American women (AARP, 2020).

Importantly, the uneven distribution of these economic risks by race and ethnicity occurs against a backdrop of persistent intergenerational wealth inequality. White households can provide more financial support to their children and grandchildren because they have historically benefited from the often violent and often state-sponsored oppression and exploitation of Black, Latino, and Asian Americans.2 The ability to transfer wealth intergenerationally helps subsequent generations of White families build wealth through large financial gifts and inheritances more so than families of color.

Communities of color thus face multiple disadvantages in building wealth compared to White households, leaving them with less retirement security. This article presents the evidence on retirement income insecurity by race and ethnicity and provides evidence on racial differences in intergenerational wealth transfers. The summary then provides an overview of the type of retirement benefits that households rely on and discusses how labor market risks interact with these retirement savings. Finally, the discussion focuses on key risks in housing, healthcare, and caregiving to demonstrate how greater risk exposure for people of color contributes to wealth and retirement income inequality.

### Retirement Income Inequality by Race and Ethnicity

To understand how well households have prepared for retirement, researchers typically relate the sum of all sources of a person’s retirement income in the future—Social Security benefits, defined benefit pensions, and all savings—to their incomes during their working years. This method is known as the replacement rate because it measures how much of a person’s income while working can be replaced with their expected retirement income (Ameriks & Utkus, 2006; Bernheim, 1997; Biggs & Springstead, 2008; Boskin & Shoven, 1987; Ellis et al., 2014; Engen et al., 1999; Gale et al., 2009; Gustman & Steinmeier, 1999; Haveman et al., 2007; Lusardi & Mitchell, 2011; Moore & Mitchell, 2000; Munnell et al., 2006; Palmer, 2002; Rhee, 2013b; Rhee & Boive, 2015; Scholz et al., 2006; VanDerhei, 2015; Warshawsky & Ameriks, 2000). To a large degree, gaps in the replacement rate by race and ethnicity follow from differences in wealth because they relate future retirement income generated from that wealth to a household’s present income.3

Often, a target replacement rate between 70 and 85% is seen as sufficient for a secure retirement. Households need less income in retirement than during their working years because they get additional tax breaks, no longer have to take on the costs of going to work, and no longer have to save for retirement.

Data on retirement security trends from 1983 to 2019 come from Boston College’s Center for Retirement Research’s National Retirement Risk Index (NRRI; Munnell et al., 2021). For 2019, the NRRI shows that 49% of working families are at risk of having to make substantial and painful spending cuts when they retire. This is a small improvement over the 50% estimate for 2016, but still well above the 31% shown for 1983 (Munnell et al., 2018a).4 Moreover, projections for 2020 show again a worsening of the overall retirement outlook due to the COVID-19 pandemic (Munnell et al., 2021).

Retirement income security has gotten worse since the 1980s. The share of people at risk of having to make substantial spending and painful cuts in retirement, according to the NRRI, went from 31% in 1983 to 49% in 2019 (Munnell et al., 2018a, 2021). Moreover, projections for 2020 show again a worsening of the overall retirement outlook due to the pandemic (Munnell et al., 2021). Further, Scholz et al. (2006) calculated that those born between 1931 and 1941 had only a 16% chance of falling below their optimal savings target in 1992, an estimate that had grown to 25.9% by 2004 (Gale et al., 2009). Looking at the expected retirement security by age also suggests a worsening trend. Younger households are less prepared for retirement than previous generations were at the same point in their careers (Butrica et al., 2012; VanDerhei, 2015).

Retirement income security is highly unequally distributed by race and ethnicity. Alicia Munnell et al. (2018b) estimated that 48% of White households were at risk of an insecure retirement in 2016, compared to 54% of African Americans and 61% of Latinos. Moreover, these retirement security gaps grew larger from 1983 to 2016 (Munnell et al., 2018b). Edward Wolff (2015) found larger shares of households of color than of White households would not be able to maintain at least three-quarters of their spending in retirement. Similarly, Butrica et al. (2012) forecasted that African American and Latino households are more likely to experience retirement income shortfalls than White households.

Using a different methodology that estimates the likelihood that a household will be able to cover all basic living expenses, researchers have found that people of color again fare worse than White households in retirement. Mutchler et al. (2017) found that 74% of Latino households were at risk of not being able to afford basic living expenses in the areas where they lived during retirement—the highest level of risk among all racial and ethnic groups. In comparison, two-thirds of African American households, 61% of Asian American households, and 50% of White households could not pay for their living expenses and needed to make cuts in their spending in retirement (Mutchler, 2017). Moreover, Weller and Wolff (2005) projected that 23.2% of White near-retirees between 47 and 64 years old could expect to have retirement incomes less than twice the poverty level—an approximation of a household’s ability to pay for basic expenses—and 56.6% of African Americans near retirement could expect to encounter difficulties paying for their basic expenses and thus face material hardships.5

#### Open Research Questions on Racial Inequality in Retirement Income

A long-standing literature on retirement preparedness addresses some aspects of racial inequality in retirement. The COVID-19 pandemic will require renewed attention to changes in life expectancy, especially as incidence, morbidity, and mortality rates of the novel coronavirus vary by race and ethnicity. How will life expectancy and the incidence of long-term disability change after the pandemic? Will those changes differ for people of color relative to White workers?

Moreover, retirement insecurity is often understudied for some racial subpopulations, especially Asian Americans, Pacific Islanders, Native Americans, and Alaska Natives. Even where information on somebody’s race and ethnicity is available, other key aspects such as place of birth or details on a possible disability do not exist in all data sets used to analyze retirement preparedness. Retirement security data that is disaggregated by multiple sociodemographic characteristics will help researchers and policy makers to gain a better understanding of which populations are more at risk for retirement insecurity, and what can be done to mitigate those risks.

### The Transfer of Intergenerational Racial Wealth Inequality

What drives the racial inequality in retirement security? Racial wealth differences are a prime candidate. Angela Hanks, Danyelle Solomon, and Christian Weller (2018) showed that the ratio of average wealth for working-age African American households to the average wealth of White households fell from 18.7% in 1989 to 11.0% in 2016. In this section, we examine racial differences in intergenerational wealth more closely.

Though not identical, wealth inequality and gaps in retirement security by race and ethnicity follow each other closely. Intergenerational wealth transfers—inheritances, gifts, and access to social networks, among others—contribute to the persistence of wealth inequality and thus retirement income gaps by race and ethnicity. White households are much more likely than African American and Latino households to receive such transfers from family members. Gaps in wealth and retirement security by race and ethnicity then persist over long periods.

Inheritances and gifts contribute to a persistent racial wealth gap (Feiveson & Sabelhaus, 2018). White households are more likely to inherit, and their inheritances are also larger than those of African American households (Bhutta et al., 2020). For example, White households are five times more likely than Black households to receive large gifts and inheritances and the average value of a White family’s inheritance is four times the average value of a Black family’s average inheritance or gift (McKernan et al., 2014; Thompson & Suarez, 2015). Jeffrey Thompson and Gustavo Suarez (2015) reported that 22.7% of White households with a head of household age 30–59 in 2016 received an inheritance, and the average inheritance was $246,136 (Thompson & Suarez, 2015). In contrast, just 9.1% of age-comparable African American households received an inheritance, and the average inheritance amount was only$106,601 (Thompson & Suarez, 2015). Among Latino households, 5.2% had received an inheritance or gift, averaging $196,234 in value (Thompson & Suarez, 2015). These gaps in inheritances and gifts can contribute substantially to the racial wealth gap over a lifetime. The cumulative impact of large gifts and inheritances amounted to an estimated 12% of the average gap in wealth between White and Black households in 2007 (McKernan et al., 2014). Recent data suggest that inheritances and gifts contribute to a wealth gap that grows over time. Data from the Federal Reserve’s Survey of Consumer Finances show that from 2010 to 2019 White households near retirement age—55–64 years old—had received gifts and inheritances that averaged$101,354 (Weller et al., 2021). Black households in this age group had received only $12,623 during that same period. Moreover, White households expected to get an additional$75,214 as gifts and inheritances, while Black households expected only $2,941 (Weller et al., 2021). On average, Black households at the cusp of retirement received or expected$161,004 less in transfers from their families than White households did.

The differences in intergenerational wealth transfers by race and ethnicity result from historical advantages that White households have enjoyed over people of color. Centuries of often violent oppression and exploitation, regular state-sanctioned and state-sponsored exclusion from wealth holding, and wealth destruction of people of color and widespread and continuing racial and ethnic discrimination made it exceedingly difficult for many people of color to build and maintain wealth that they then can pass to subsequent generations (Darity & Mullen, 2020; Katznelson, 2005; Rothstein, 2017).

The flipside of this argument is that racial wealth inequality and thus the gap in retirement income security by race and ethnicity does not follow from differences in saving behavior. While White households tend to save more than households of color, those differences disappear when researchers account for income differences and gaps in inheritances between the two groups (Dal Borgo, 2019; Gittleman & Wolff, 2004). People of color save as much as White people when given the chance.6

### Changes in U.S. Retirement Savings and Retirement Wealth Inequality by Race and Ethnicity

Social Security offers an almost universal but basic retirement income. Workers thus need to rely to a large degree on their own savings for a secure retirement. Because people of color are less likely to inherit money, they need to save more on their own than White households do to end up with similar levels of retirement income security.

Retirement savings typically come in the form of either defined contribution (DC) accounts or defined benefit (DB) pensions. Defined contribution accounts are personal retirement savings accounts offered through an employer. Participation in such accounts is voluntary. Employees who decide to participate also need to decide on the amount they want to save, the investments of those savings, and ultimately the withdrawal of those savings—either in one lump sum or in little steps over time. The most common DC accounts are 401(k) accounts—named after the relevant tax code provision—and to a much smaller degree individual retirement accounts (IRAs; Chen & Munnell, 2017; Holden & Schrass, 2016). DB pensions, in comparison, automatically cover employees if they meet the eligibility criteria such as length of employment with the employer and hours worked. Employees eventually receive a lifetime stream of income, the value of which is dependent on their earnings with the employer and the length of time they worked for an employer. DC accounts have increasingly replaced DB pensions among private-sector workers (Weller, 2016). By 2016, 44% of all households had only a DC plan, 19% had only a DB pension, and 9% had both a DC account and a DB pension at work (Morrissey, 2019).

#### Racial Inequality in Retirement Savings

Many African American and Latino workers do not have access to any form of retirement benefits through their employer (Harvey, 2017). In 2016, for example, more than one-third (36.2%) of all workers had no access to an employer-sponsored retirement plan at work (Pew Charitable Trusts, 2016). This lack of access is even greater among people of color: 38.6% of African Americans and 54.9% of Hispanic workers did not have access to a retirement plan at work (Pew Charitable Trusts, 2016).

Multiple researchers have found similar racial gaps in access to retirement savings accounts. For example, considering all retirement benefits, Copeland (2014) found that 55.2% of White workers, 52.1% of Black workers, and 35.9% of Hispanic workers had access to a retirement plan at work in 2013. Nari Rhee (2013a) showed that 60.9% of White wage and salary employees had access to a workplace retirement benefit in 2012, while 54.3% of African Americans, 53.8% of Asian Americans or Pacific Islanders, and only 37.8% of Latinos did.

As a result, people of color are less likely to have any retirement savings and have smaller account balances. In 2016, only 37.5% of African Americans had any retirement savings account, compared to 65.9% of White households. The median balances amounted to $23,000 for Black households compared to$67,000 for White households (Hanks et al., 2018). Similar gaps exist between White and Latino households (Solomon & Weller, 2018). Asian American households were somewhat less likely than White households to have any retirement savings accounts—59.3% of Asian households compared to 73.3% of White households owned such assets from 2010 to 2016 (Weller & Thompson, 2018). However, the balances in these accounts were similar between Asian and White households (Weller & Thompson, 2018).

These gaps by race and ethnicity also exist with DB pensions. People of color are much less likely to have DB pension benefits from a current or former employer, and when they do, their imputed wealth—the current value of future expected benefits—is much lower than for White households. In 2019, 26.7% of African American households and 16.4% of Latino households had earned benefits under a DB pension, compared to 34.4% of White households.7 Among Asian American households, only 17.4% had earned benefits in a DB pension in the years from 2010 to 2016 (Weller & Thompson, 2018). And in 2019, the average DB pension wealth among those that had a DB pension amounted to $442,640 for Black households and$365,668 for Latino households, compared to $516,389 for White households.8 DB pension wealth is more equitably distributed by race and ethnicity than other retirement savings, but a significant gap exists in having access to these benefits by race and ethnicity. #### Racial Gaps in Participation in DC Accounts Workers who have access to an employer-sponsored retirement account typically need to decide whether they actually want to opt in to participate in these benefits. People of color not only have less access to retirement plans at work but are also less likely to participate in them when offered. Overall, 71% of civilian workers participated in retirement plans offered by their employers in 2018 (U.S. Bureau of Labor Statistics, 2019). Yet 81.2% of White workers participated in these retirement plans while 75.0% of Black workers and 73.9% of Hispanic workers did (Copeland, 2014). In comparison, among Asian American and Pacific Islander wage and salary workers the share was similar to that of White workers (Rhee, 2013a). There are several reasons for workers not to be covered—or in the standard terminology “participate”—in a retirement savings account. Many experience status quo bias, whereby they fail to take the necessary steps to sign up for an employer’s retirement plan (Thaler & Benartzi, 2004). To ensure that more employees take advantage of employer benefits, a growing number of employers have established so-called “opt out” options in retirement savings plans, whereby workers are automatically enrolled in a 401(k)-type plan at work and have the option to decline to participate. Research has shown this approach reduces barriers to participation in employer-sponsored retirement plans by turning status quo bias on its head (Choi, Laibson, & Madrian, 2004; Choi, Laibson, Madrian, & Metrick, 2004; Madrian & Shea, 2001). Employees tend to stick with being enrolled in a retirement savings plan, rather than opting out of it. Even though these efforts have changed the way many retirement savings plans operate, the overall share of people covered by a retirement plan and the gaps in retirement plan coverage by race and ethnicity have changed little over the years (Morrissey, 2019). To address the lack of retirement savings, especially among people of color, many states have started to create government-sponsored retirement plans. Typically, employees who work for an employer that does not offer a retirement benefit at work are automatically enrolled in such state-sponsored retirement plans. The employer is only responsible for facilitating a payroll deduction into the state-sponsored accounts and employees can again opt out if they do not want to participate. Examples of such publicly administered retirement plans exist in California, Oregon, and Illinois, among others (Center for Retirement Initiatives, 2021). These state-sponsored plans hold the promise of a shrinking racial retirement savings gap and find larger support from Latinos and African Americans than White workers (Pew Charitable Trusts, 2017b).9 In the context of employer-sponsored retirement savings plans, workers may not be eligible for inclusion because they work too few hours or have not worked for their employers long enough (Pew Charitable Trusts, 2017a). To some degree, this lack of access to retirement savings has paralleled the growth of earnings volatility. Among the factors contributing to earnings volatility are irregular work schedules, unemployment spells, and working for contingent pay such as tips, bonuses, and commissions (Board of Governors, 2014). Industries such as retail and food service, where employment has expanded over time (Golden, 2015; Morduch & Schneider, 2017), are particularly prone to this type of income uncertainty. African American and Latino workers typically experience greater job instability than White workers (Solomon & Weller, 2018; Weller, 2019). This greater job instability means less time with one employer and difficulty in qualifying for retirement benefits because employers require a minimum period of employment before workers can receive benefits. Greater job instability can also mean less predictable schedules and thus volatile earnings from week to week (Aspen Institute, 2019; Board of Governors, 2014). This makes it more difficult for people to predict how much disposable income they have for retirement savings, and people often cite a lack of disposable income as a reason for not saving for retirement (Pew Charitable Trusts, 2017a). #### Racial and Ethnic Differences in Contributions to DC Accounts Workers still need to decide on how much to contribute once they decide to participate in a retirement savings account. Black and Latino workers typically contribute smaller shares of their incomes to a DC account than White workers (Yoong et al., 2019). In 2010, the median contribution rate was 5% of earnings for African Americans, 4% for Latino workers, and 6% for White workers (Yoong et al., 2019). Earnings volatility and the associated lack of predictability keeps contributions low (Ghilarducci et al., 2018). People after all have to prepare for unexpected income shocks by increasing precautionary savings (Cagetti, 2003; Carroll & Samwick, 1998; Gourinchas & Parker, 2001; Guiso et al., 1992, 1996; Hochguertel, 2003). This leaves less money to save for retirement. Since people of color are more likely to experience earnings and income volatility, they will also contribute less than White workers. #### Racial Disparities in Investment Risks in DC Accounts Workers also need to choose their financial investments with their savings. This creates the possibility of too much financial risk, which can translate into excessive financial losses. People may also incur too little risk and thus forgo potentially faster growth of their investments. Considering retirement accounts in isolation, African Americans and Latino workers appear to invest less in stocks—a measure of their retirement savings’ riskiness—than is the case for White workers (Bhutta et al., 2020; Choudhury, 2002). However, a preference for secure investments reflects larger economic risks for people of color outside of their retirement savings. These additional risks stem from greater risks associated with investments in businesses and homeownership (Weller, 2016), less stable jobs (Ajilore, 2020; Weller, 2019), greater healthcare needs (Maxwell, 2020), and more caregiving responsibilities for family members (AARP, 2020; Cohen et al., 2019; Collinson & De La Torre, 2017). #### The Importance of Economic Security for Retirement Wealth Inequality Stock market investments and earnings volatility also interact with each other in ways that reduce wealth for people of color. People lose earnings in an economic downturn due to job losses and cuts in hours. At the same time, stock prices fall. Lower stock prices are opportunities to buy stocks and gain returns when the economy recovers. However, African American and Latino workers are more likely to experience job losses and earnings drops in a recession and thus have fewer opportunities to invest money in the stock market at that time. Many workers may actually need to sell some of their stocks when prices are low to gain access to income during a downturn. The process also works against workers of color during an economic upswing. They are often hired back into their jobs well after White workers (Ajilore, 2020; Weller, 2019), but at that point stock prices have already started to recover their initial losses. That is, people of color are more likely to be forced by circumstances to “buy high, sell low” with their investments (Weller & Wenger, 2009). There are additional links between earnings volatility and wealth inequality. People are more risk averse when their incomes are less stable and are less likely to invest money for longer periods (Benito, 2006; Gonyea, 2007; Orel et al., 2004). Shorter-term investments, though, offer lower returns on average, hampering the growth of wealth over time. Further, income volatility can cause acute stress (Rohde et al., 2016; Sinclair & Cheung, 2016), which in turn makes it more difficult for people to save (Porcelli & Delgado, 2009). People under stress rely more on automated decisions and thus miss saving and investment opportunities that require active decisions (Porcelli & Delgado, 2009). For example, people who experience stress from unpredictable earnings may be less likely to participate in DC accounts at work. #### Risk Exposure in DB pensions DB pensions typically expose workers to fewer choices and thus fewer risks: Employees qualify for a DB pension and participate automatically, there is generally no discretion in how much to contribute, and all DB pensions offer an annuity option. DB pensions are more prevalent in unionized private settings and in public service jobs. In both cases, the wealth gap between people of color and White workers is smaller than in nonunionized private sector jobs (Madowitz et al., 2020; Weller & Madland, 2021). However, as DB pensions have declined and DC accounts with their greater risk exposure have grown, wealth inequality among those who are covered by a retirement plan at work has also gone up (Devlin-Foltz et al., 2016; Sabelhaus & Henriques Volz, 2019). #### Open Research Questions on Retirement Savings Research on private, voluntary retirement savings in the United States has a long history that has informed both retirement plan design features and public policy. The most pressing research questions thus relate to some of these fundamental changes. With respect to plan design for voluntary, employer-sponsored retirement benefits, the key question is whether any single change or the combination of multiple changes can raise retirement savings in general and close the racial retirement savings gap in particular. Many state policy makers have concluded that private sector employers will not do enough in either regard and thus promote new retirement savings platforms that deviate from the entirely voluntary model that has dominated U.S. retirement policy. In some states, many employers are required to offer payroll deductions for government-sponsored retirement savings. There are several open questions about these new plans: Do they shrink racial retirement savings gaps? Are households of color more likely than White households to opt out? Do these state-sponsored plans crowd out private employer-sponsored plans and leave people of color with fewer overall retirement benefits? Are people of color building wealth fast enough for a secure retirement since investment options in government-sponsored retirement plans are often limited? Are people of color losing retirement savings, either because they cash out their savings or because they forget about them when they move out of state? As states collect information on their efforts to improve retirement savings overall, it will be critical to collect and analyze data by race and ethnicity in these new retirement savings options. ### The Benefits and Risks of Home Equity as Retirement Savings for People of Color For many households, savings in the form of home equity also constitute a large if not the largest source of wealth and thus potential retirement security outside of Social Security. Even though African Americans and Latinos are less likely to be homeowners than Whites, home equity tends to constitute a greater share of total wealth for households of color as they also lack access to significant retirement savings (Hanks et al., 2018; Solomon & Weller, 2018). Homeownership constitutes forced saving as homeowners pay down their mortgages and build equity (Herbert et al., 2013). Unlike savings in a DC account, homeownership also provides a stream of in-kind income in retirement as most people plan to stay in their houses (Society of Actuaries, 2018) and end up doing so in retirement (Venti & Wise, 2004). Relatedly, housing is partial insurance against the risk of outliving one’s savings (Poterba et al., 2011). In some ways, home equity mirrors key aspects of DB pensions, although at the individual level not in a pooled form. Homeownership offers particular benefits to people of color. It allows people to build wealth when they have less access to other forms of savings such as retirement benefits through their employers. Moreover, homeownership allows families to support other family members; in multigenerational households, for example, which are more common in communities of color (Guzman & Skow, 2019). For instance, 29% of Asian American households, 27% of Hispanic households, 26% of Black households, and 16% of White households were multigenerational households in 2016 (Guzman & Skow, 2019). Homeowners, however, face a number of costs and risks before and during retirement. For one, homeowners need to maintain their houses, which can often put a strain on modest retirement incomes. Home equity is also a rather illiquid asset that cannot be easily converted into cash (Sinai & Souleles, 2007). Also, housing is an asset that is specific to a geographic area. The value of a house can be subject to economic influences such as local labor market conditions that are outside of the homeowner’s control. These factors can make it difficult for homeowners to turn their home equity into cash and, for example, pay for healthcare in retirement by moving to a smaller or less expensive residence. In addition, retirees may end up maintaining more housing than they need if they cannot sell a house that was meant for a larger family. There are racial gaps in both homeownership rates and home equity. At the end of 2020, 44.1% of Black households, 49.1% of Latino households, and 59.5% of Asian, Native Hawaiian, and Pacific Islander households owned their own homes, compared to 74.5% of White households (U.S. Census Bureau, 2021). Moreover, when African American and Latino households own their own homes, they have much lower home equity than is the case for White households (Hanks et al., 2018; Solomon & Weller, 2018). Andre Perry et al. (2018) estimated that the average house of an African American family was worth$48,000 less, even after accounting for differences in home and neighborhood quality. In addition, house values in neighborhoods with large concentrations of homeowners of color saw much slower recoveries from the depths of the housing crisis associated with the Great Recession (Immergluck et al., 2018; Zonta, 2019).

What contributes to these differences in homeownership and equity? People of color face obstacles to homeownership that increase their costs and risks. Discrimination in mortgage markets raises the cost of buying a house as people of color end up paying higher interest rates and fees on their mortgages (Quillian et al., 2020). Homeownership also comes with fewer ancillary benefits for households of color than for White households (Perry, 2020). Racially segregated, high-minority communities are often characterized by lack of access to quality jobs, underinvestment in transportation infrastructure, lower homeownership rates, under-resourced schools (Johnson, 2019), and limited availability of key services such as healthy food options in grocery stores (Kurtz, 2013). These factors decrease housing values in an area and negatively affect the ability of households of color to gain home equity.

Benefits and risks of homeownership offset each other to a large degree. The rate of return on housing is greater than for treasuries but below that of stocks; but the risks of housing investments are greater than those of stocks and treasuries (Jud & Winkler, 2005). Some researchers have concluded that homeownership does not in fact increase savings (Krumm & Kelly, 1989) and that low-income households do not build wealth faster as homeowners than renters (Wainer & Zabel, 2020).

Still, home equity on average makes up a larger share of total wealth for African American and Latino households than for White households because the gap in other mainly financial assets, especially retirement savings, is even greater. Having a larger share of their assets concentrated in home equity, in addition to that asset being more highly leveraged, creates larger financial risks for households of color (Weller, 2016). A drop in house prices translates into much larger total wealth losses for African American and Latino households than for White households, as was the case during and after the Great Recession. Building wealth through homeownership is one path toward more retirement security for many African Americans and Latinos, but it comes with greater risks than homeownership does for White households.

#### Open Questions on Housing as Retirement Savings

Housing as retirement savings for people of color raises a few key questions. During the pandemic, housing values in many locations increased substantially. These increases benefited those who already owned homes but threatened to shut out potential homeowners, especially those with lower income and less wealth. Given racial and ethnic disparities in homeownership, will the rise in home values further increase racial and ethnic wealth disparities? And does that translate into a widening racial gap in retirement security?

The pandemic as well as the Great Recession highlighted massive financial risks for both homeowners and renters. How did the distribution of these risks develop during and after the respective crises by race, ethnicity, and housing tenure? Moreover, how relevant and effective are policy options to increase emergency savings for homeowners? Such efforts, often aimed at expanding employer-sponsored savings options to include emergency savings, could reduce the risks of homeownership. Other efforts include shared equity purchases that distribute the risks and benefits of homeownership between lower-income purchasers and lenders. But are there differences in the eventual distribution between benefits and risks by race and ethnicity? Finally, which supplemental policies, such as enforcing antihousing discrimination, are most effective in boosting homeownership among people of color in addition to financial support? Overall, researchers need a better understanding of the distribution of risks and benefits of homeownership by race and ethnicity under a range of emerging policies.

### The Risks and Costs People of Color Face When Saving for Retirement

People of color often have fewer retirement savings and less retirement income security than White households do. Yet their retirement savings will have to account for higher costs and greater risks over their careers and into retirement. Most notably, people of color face greater healthcare risks and costs.

The coronavirus pandemic highlighted racial and ethnic disparities in healthcare and health outcomes. Many people of color, most notably African Americans, Latinos, Native Americans, and Alaska Natives were at higher risks of contracting the virus and of experiencing severe outcomes (Oppel et al., 2020; Sun, 2020).

These disparities are the outcomes of several historical and present-day disparities that systematically disadvantage people of color. People of color often suffer from worse health outcomes than White people because they are regularly exposed to more health hazards where they live and work (Richardson & Morris, 2010; Thebault et al., 2020). They also often live in communities with worse pollution (see, e.g., Taylor, 2014) and face worse housing conditions due to racial segregation, which can result in higher incidence of asthma (Alexander & Currie, 2017). People of color have less access to healthcare than White households (Ko et al., 2014) and live in areas that have fewer healthy food options (Walker et al., 2010). They are also more likely to work in physically demanding jobs. African Americans in particular face a greater threat of police brutality and incarceration (Hollis & Jennings, 2018). Furthermore, many people of color face healthcare discrimination (Sabin, 2020), which over time leads to worse health outcomes (Williams et al., 2019). They are also more likely to have worse health insurance coverage and receive less authorization for treatment than White patients (Obermeyer et al., 2019). Worse insurance coverage frequently leads to medical debt, less wealth, and higher incidence of bankruptcy.10

Households of color are also more likely to support other family members and less likely to receive family support from family members. This is possibly a reflection of persistent lack of wealth among people of color across multiple generations (Toney & Hamilton, 2020). Data from the U.S. Federal Reserve’s Survey of Consumer Finances showed that, from 2010 to 2019, 16.3% of African American households, 14.1% of Latino households, and 17.5% of households of other or multiple races and ethnicities financially supported family and friends, compared to only 13.1% of White households (Francis & Weller, 2021). The financial support of family and friends makes it more difficult to save, which contributes to racial wealth gaps and possibly to retirement instability. Establishing a causal link between familial lending and retirement income security is an open question.

This type of familial aid may also intersect with health disparities in a way that further disadvantages households of color. Jermaine Toney and Vicki Bogan (2019) found that having a sibling with a mental health issue decreases the likelihood of investing in risky assets. It is possible that having family members that may require financial support for health concerns can create the desire for more stable investment returns in order to guarantee the presence of a safety net in the event that a family member requires support. It is unclear if this type of risk hedging happens when family members have health concerns other than mental health and whether there are racial or ethnic differences in the likelihood of these interactions that further disadvantage wealth accumulation and savings on the part of households of color.

### Racial Retirement Security Gaps in Canada and the United Kingdom

Canada and the United Kingdom (UK) are relatively similar to the United States with regard to racial and ethnic pluralism and gender equality; however, they differ with regard to the scope of social safety net programs, such as the provision of old age pensions. Comparing the racial and gender gaps in retirement security in Canada and the UK can provide insights into potential policy recommendations in the United States, such as expanding the social security program or implementing state-level public pension programs. Retirees in Canada and the UK rely on multiple sources for income security in retirement, including public and private pensions, savings, and home equity (Curtis & Lightman, 2017; Warren, 2006). They also exhibit racial gaps in retirement security.

In the UK, where private, employer-based pensions are becoming more prevalent, ethnic minorities are less likely than White Britons to have private occupational or personal pensions, with Pakistanis and Bangladeshis being the least likely (Ginn & Arber, 2001). Regarding gender, women are less likely than men to participate in private occupational or personal pensions. The greatest gender disparities occur among Pakistanis and Bangladeshis, while Black men and women exhibit the least gender disparity, which is attributed in part to varying gender differences in employment (Ginn & Arber, 2001; Warren, 2006). Black Britons, however, are among the most disadvantaged with regard to other financial assets and housing wealth, which adds to their overall risks of retirement insecurity (Warren, 2006).

In Canada, recent immigrants, who are more likely to identify as racial or ethnic minorities, have lower-paying jobs, which affects their ability to accumulate significant savings (Curtis & Lightman, 2017; Preston et al., 2012). They are also less likely to have access to private employer pension plans, much like racial minorities in the United States (Curtis & Lightman, 2017; Preston et al., 2012). The risk of poverty among retirement-age Canadians is greatest among recent immigrant women (Preston et al., 2012). Since they are less likely to have private savings or private employer pensions, recent Canadian immigrants are more likely to participate in Canada’s noncontributory, flat-benefit, public pension programs (Curtis et al., 2017). However, Canadian immigrants only reach the maximum public benefit level once they have been in the country for 40 years. This aspect of the plan contributes to a sizable public benefit gap where recent Canadian immigrants (more likely to be racial/ethnic minorities) have lower retirement benefits and are less likely to participate in the public pension program (Curtis et al., 2017). This evidence provides a cautionary tale regarding the ability of public pension programs to decrease racial and ethnic gaps in retirement security. If the public programs impose barriers to access that disproportionately exclude minorities, they may add to retirement security gaps instead of reducing them.

### Conclusion

Black, Latino, and many Asian households experience retirement insecurity at higher rates than White households. These disparities in retirement security exist for many reasons. Black and Latino workers face labor market discrimination and occupational segregation, which leaves them in low-paying jobs and with limited access to retirement savings benefits. Black and Latino households are also less likely than White households to be the beneficiaries of intergenerational wealth transfers that can help lessen debt burdens and ease access to higher education and homeownership—both crucial pathways to wealth building and retirement savings. Households of color are also less likely to benefit from increases in home equity due in part to discrimination in lending markets and the devaluing of homes in majority-minority neighborhoods. Finally, Black and Hispanic households are more likely to experience additional drains on savings such as adverse health outcomes, limited access to reliable healthcare, and the call to financially support friends and family members in need.

An understanding of the root causes of disparities in retirement savings and retirement security is necessary for creating effective policy solutions. This article has highlighted a few unanswered questions surrounding the racial retirement gap. Further research and analysis to answer these questions are a first step toward addressing these disparities.

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### Notes

• 1. Our discussions primarily focus on the evidence for African American and Latino households because of the limited data and research related to retirement savings for other groups.

• 2. For a thorough summary of the historical oppression, exploitation, and discrimination against African Americans and the connection to the persistent wealth differences between Black and White households, see Darity and Mullen (2020). For a discussion of East Asian immigrants’ history and connections to wealth building, see, for instance, Wong (2016) and Keister et al. (2016). For recent evidence of wealth inequality among Asian Americans, see Weller and Thompson (2018).

• 3. Differences in life expectancy by race and ethnicity are the other key factors that influence gaps in retirement income security. Yet trends in wealth and income have seen larger changes over the past four decades than changes in longevity. That is, wealth inequality dominates conclusions about retirement security.

• 4. The NRRI represents somewhat of a midpoint of the available estimates for retirement security. Nari Rhee and Ilana Boivie (2015), for instance, estimate that 66.2% of working families did not meet financial industry standards for a secure retirement, compared to 53% of working families for that year (Munnell et al., 2018a). In comparison, William Gale and his co-authors (2009) concluded that 26% of households fell short on having enough savings for a secure retirement, well less than the 45% estimate from the NRRI for that year (Munnell et al., 2018b).

• 5. Comparable calculations do not exist for Asian Americans nor for other racial and ethnic groups. The available data, though, indicate that a larger share of Asian Americans than of White households struggle in retirement (Weller, 2018).

• 6. It is possible that many people of color actually save more than White households because they have historically had less access to formal finance due to discriminatory practices such as redlining.

• 7. Authors’ calculations based on Board of Governors (2020).

• 8. Authors’ calculations based on Board of Governors (2020) and Sabelhaus and Henriques Volz (2019).

• 9. Canadian old age security offers a cautionary tale. Recent immigrants and those who lack language proficiency are less likely to take advantage of this benefit, thus resulting in racial retirement savings gaps (Curtis et al., 2017). State-sponsored retirement systems in the United States then may have to consider additional efforts to ensure that such low-risk, low-cost retirement options do not exacerbate racial and ethnic retirement gaps.

• 10. See Weller and Newman (2020) for a summary of the evidence on the interactions between medical debt, health outcomes and wealth.