Grant’s Best Practices: Industry Trends in Equality (Inequality?)
With Martin Luther King Jr. day fast approaching, I thought it would be appropriate to continue our roundup of studies and reports from 2020 by sharing two that highlight gender, racial and ethnic inequalities in retirement wealth and access to workplace savings plans.
Measuring Racial/Ethnic Retirement Wealth Inequality is a January 2020 working paper from the Center for Retirement Research at Boston College. The authors use data from the University of Michigan’s Health and Retirement Study (HRS) to examine retirement resources of white, black and Hispanic households. According to the report, the typical black household in 2016 had 46 percent of the retirement wealth of the typical white household. For Hispanic households, this figure was 49 percent.
The authors of the report also note that without Social Security, a typical white household would have 5 to 7 times the wealth of a minority household. Social Security serves to temper the gap not only because of the progressive nature of the benefit, but because coverage extends to most workers whereas access to employer-sponsored retirement does not.
Could state-facilitated retirement savings programs complement Social Security’s leveling effect by expanding access and making participation in employment-based retirement savings plans more widespread? It seems likely given that people of color are currently less likely to have access to workplace plans. See, for example, the 2013 National Institute on Retirement Security (NIRS) report, Race and Retirement Insecurity in the U.S., which finds workers of color are significantly less likely than white workers to be covered by an employer-sponsored retirement plan.
Still Shortchanged: An Update on Women’s Retirement Preparedness updates a 2016 NIRS report that found gender inequality continues into retirement where the pay gap becomes a wealth gap. The study uses data from the 2014 Survey of Income and Program Participation, a household survey with a nationally representative sample, to examine inequalities between men and women with respect to retirement savings and sources of income.
Still Shortchanged finds that women age 65 and older had a median retirement income of $47,244, which is 83 percent of the median retirement income for men. The report also finds that retirement income of men with defined contribution (DC) plans is greater than that of women with savings in DC plans, and significantly exceeds that of women who do not have defined contribution savings. In addition, women need to make their savings last longer due longer life expectancies.
By highlighting the persistence of gender, racial and ethnic gaps, both studies make a compelling case for the importance of state-facilitated savings programs aimed at increasing access and participation in retirement savings to all.
In the next issue of RSM, I’ll conclude this review of selected 2020 studies and reports by sharing several with a focus on industry trends and best practices for defined contribution plans.
Stay tuned! / Grant
This piece was featured in the January 14, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
