Retirement Could Be At Risk For People Of Color

Although many of them say they are reasonably prepared for retirement, Americans who identify as people of color report their retirement-focused investments are limited and they show a lack of progress toward achieving important retirement goals.

That’s the word from Allianz Life, whose research on retirement readiness indicated people of color may be misinterpreting their financial situation and putting their retirement at risk.

More than half of people of color (55%) who responded to Allianz’s latest Retirement Risk Survey said they believe they are currently saving enough in a retirement account, and a nearly equal amount (52%) believe they have plenty of time to save for retirement. These feelings of preparedness are underscored by the fact that more than one-third (35%) of people of color said retirement is too far away to start worrying about it. Nearly seven in 10 people of color say they plan to work into retirement.

Cecilia Stanton Adams, Allianz’s chief diversity and inclusion officer, said different cultural values that shape their decision-making could influence the level of confidence people of color have in their retirement readiness.

“Oftentimes in communities of color, breadwinners are expected to balance support for multiple generations with their personal retirement goals,” Stanton Adams said. “This complexity, among others, could be responsible for the disconnect we see between perception and reality, putting people of color at higher risk for retirement insecurity.”

Adams said that the phrase “people of color” refers to those of many ethnic groups, including African American, Asian, Pacific Islander, Hispanic and Native American. Although each of those individual groups has its own customs and traditions, she said, they have several characteristics in common.

“We do know that when it comes to the typical American dream of retirement — reaching the age of 65, having a nest egg put away that you can then rely upon to travel and do all the things that you want to do — that may not be the way that many people of color are thinking about their retirement.”

She noted that in many communities of color there is a culture of collectivism, as opposed to the culture of individualism that is prevalent elsewhere. And that affects retirement planning.

“We see in many cultures that there are multiple generations within one household,” she said. “As you grow up, you know that your responsibility is going to be taking care of your parents when they are older. So now you have someone of color who is looking at their retirement and thinking, ‘OK, when I reach a certain age, I will move in with my son or daughter and become part of that larger household.’ And the person at the head of that household is thinking about not only taking care of themselves individually or taking care of their immediate family, but also taking care of their extended family. So that also makes them think about retirement differently.

At the same time they are thinking about taking care of parents, they also may be thinking about educating the younger family members. So that’s going to limit the amount of money they have available to save for their own retirement.”

Fewer than half of respondents of color report ownership of investments and accounts that can help with retirement security. This includes participation in employer-sponsored plans (48%) and individual retirement account ownership (21%).

With less than half of people of color reporting they are enrolled in a workplace retirement plan, it’s a real concern about their retirement readiness, Adams said.

“For some people, they may not have access to a plan at work, but for those who have access to one and are not participating, those are dollars they are leaving on the table. But for many families, they are more concerned about trying to get the most they can out of every paycheck. It’s a balance between how do we meet our immediate needs and how can we take care of more long-term needs.”

Another is that nearly seven in 10 people of color say they plan to work into retirement.

When asked how they are moving toward their retirement goals, fewer than half of people of color reported making progress. Some of the steps they said they are taking include “setting long-term financial goals” (46%) and “diversifying my retirement savings to protect more of my nest egg” (40%).

At the same time, people of color indicate a significant level of concern about a variety of retirement issues in which a financial professional could provide assistance. Some of these concerns include “having unexpected, large expenses to pay” (63%), “becoming a financial burden to your loved ones” (52%), “not having enough money to do all the things you want to do in retirement” (53%) and “not being able to stay in your home” (48%).

One factor impacting the retirement readiness of people of color may be a lack of professional help. Less than one-third (32%) of people indicated that they are currently working with a financial professional.

Adams said the lack of advisors of color may have an influence on the low percentage of people of color who are working with a financial professional.

“The chances are that if you do use a financial professional, you’re going to look for one within your network,” she said. “You may ask a neighbor or a friend if they are working with someone; but if they’re not connected with anyone, you may not have access to help either.”

She said the number of young people entering the financial services profession and reaching out to underserved communities is an encouraging sign. “A lot of these different groups haven’t had that connection to a financial services provider in the past.”

The retirement readiness gap among communities of color provides an opportunity for advisors and financial services companies, Adams said.

“Those who have an understanding of cultural values, how they are important to each individual household and how to infuse those cultural values into someone’s long-term plan will help define the retirement legacy in the way that means the most to people of color,” she said.

“Cookie-cutter approaches are no longer appropriate.”

Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at susan.rupe@innfeedback.com.