By 2035, there will be more older adults than children in the United States, a first in U.S. history, and a significant number of them will be facing increased economic uncertainty. Age-friendly banking, effective financial products and services tailored to seniors but mutually beneficial to financial institutions, seeks to address this issue and help enhance older adults’ financial security. Yet, many of these products should be more encompassing of other intersections, including racialized asset poverty.
While it is clear the racial wealth divide grows sharply with age, there is very little understanding of retirement security best practices for low-wealth seniors. White families accumulate more wealth over their lives than Black or Latino families do and are more prepared for retirement. More specifically, 83% of African American senior households and 90% of Latino households are expected to have insufficient household resources to live out their remaining years, compared to 53% of Whites. Asset-poverty among seniors of color causes significant financial strain on their families who are often liquid asset-poor and financially insecure. In fact, as of 2011, African Americans had a median liquid wealth of only $200, compared to $23,000 held by Whites and $19,500 held by Asians. Households of color often deplete any existing assets and redirect their earnings to ensure care for their elders. This limits the elder’s ability to age in place and prevents their family members from building wealth.
Traditional retirement products and financial services are ambivalent at best to the needs of low-wealth households. Retirement savings is typically considered to have four primary components: social security, pensions, savings and housing assets. Companies that offer traditional pensions have steadily declined since the 1980s and have been replaced by defined-contribution plans. The distributional dynamics of these 401(k)-style plans, as well as other tax-favored retirement vehicles like IRAs, are skewed toward the top of the income spectrum, and hence toward White households who can afford to divert money into them. African Americans and Latinos are also less likely to be homeowners or receive an inheritance. Thus, Social Security makes up the majority of retirement wealth in households of color but is far from a sufficient form of retirement savings.
Financial institutions need to better account for low-wealth households in their retirement products, financial education and broader suite of services. There is also a need for a greater understanding of gender disparities in communities of color. While women have faced additional historic and systematic discrimination that has blocked their wealth-building opportunities, the current impact analysis is largely skewed by higher wealth communities. It is unclear if a disparity between women of color and men of color in their wealth creation and retirement security is the same as seen in White households.
The graying of racial and gender wealth inequality should be of great concern to the broader aging community and the financial sector. Senior-serving organizations and advocates should leverage their membership to pioneer research that better define these disparities and partner with financial institutions to scale promising products and services. As the senior population continues to grow in size, it will also grow to be more diverse. Financial institutions, especially retirement companies, have an opportunity to get ahead of the curve and pilot products that increases the retirement readiness of this growing population. Without adequate intervention, older people of color will continue to be trapped in a cycle of asset poverty that is damaging to them, their families and the larger economy.
Sabrina Terry is the Director of Strategic Initiatives at NCRC.