Leveling the retirement playing field

For American families, retirement savings often represent their largest asset, making smart investment choices essential for long-term financial wellness. Unfortunately, saving for retirement isn’t the same for everyone. Whether it’s due to historical, social, or economic factors, many individuals and communities face challenges when it comes to preparing for their future. Three groups that are heavily impacted are women, people of color, and those with lower levels of educational attainment. The good news is that these gaps are not insurmountable — and understanding these disparities is the first step towards fostering a more equitable financial future for all everyone.

Women: Societal and structural factors hinder women’s ability to save consistently for a future

Key issues:

• Historically, women have shouldered the role of (often unpaid) caregivers, dedicating time to caring for children and aging parents, which can disrupt their careers and limit their ability to save consistently.
• Men are often tasked with caring for the family’s finances, which leaves a gap in financial education for women.
  
• Women live longer on average, making it harder for women’s dollars to go as far as those of their male counterparts. 

Statistics:

• On average, men have 44% more saved in their 401(k) accounts than women.
• Due to a lack of financial education, 70% of women say they’re confused about how to translate savings into monthly income — and women are 30% less likely than men to feel confident about their retirement futures.
• Despite these unique challenges, less than one-third of women work with a financial advisor, highlighting an opportunity to bridge the gap by providing personalized guidance and solutions tailored to their specific needs.

People of color: Systemic barriers to saving leave many people of color starting from a financial disadvantage

Key issues:

• Black and Hispanic workers are more likely to work in the Accommodation and Food Services sector, where pay and benefits are scant. 
  
• Homeownership rates — a critical vehicle to wealth building — are disproportionately lower for Black and Hispanic households compared to white households, resulting in a net worth that is much lower for these groups.
• Low-income workers may receive negligible benefit from participating in a plan because they owe payroll and other taxes but not income tax. 

Statistics

• Only 44% of Black families and 28% of Hispanic families have a retirement account, compared to 65% of White families.
• Non-Hispanic White households aged 51 to 64 had median retirement account balances of $164,361 in 2019 (adjusted to 2022 dollars), compared with $80,349 for all other racial groups.
• Black participants are more likely than their White counterparts to have an outstanding retirement plan loan, with 49% of Black men and women aged 55-59 carrying such loans — the highest rate among all groups.

Lower educational attainment: Those with less education are more likely to work in low-wage jobs with limited access to DC plans

Key issues:

• Job insecurity and disruptions in employment lead to a higher risk of forgetting about past employer-sponsored retirement plans.
• Limited benefits in lower-wage roles and fewer opportunities for employer-sponsored retirement plans make consistent retirement saving difficult.
  
• Amongst those with a lower level of education, there’s unawareness of the importance of planning for a financially secure future.

Statistics:

• A family whose head of the household did not attend college had retirement account balances 63% smaller than those that did.
  
• In 2019, only 23% of low-income households had access to employer-sponsored retirement plans, compared to 75% of high-income households.
  
• Lower-wage workers have a higher risk of misplacing employer-sponsored retirement accounts since they change jobs more frequently.
  

What you can do to help close the gap

Closing the retirement savings gap begins with recognizing the inequities that exist. Advisors have a unique opportunity to empower clients by providing education around their personal finances — a right that everyone deserves. Though women, people of color, and those with lower levels of education may start at a disadvantage or historically have less access to DC accounts, it’s important that those who do have access receive the same level of care as their more-advantaged counterparts. Advisors can:

• Provide personalized guidance to those in underserved communities who have employer-sponsored retirement plans.
  
• Educate individuals on the availability of other options like micro 401(k)s and state-sponsored retirement plans to ensure that even those without traditional DC access can save for the long term.
  
• Help clients utilize the new DOL database of lost and found retirement accounts, which allows them to recover retirement benefits that may have been misplaced due to job changes.
  
• Act as an advocate for increased financial literacy, equal pay and more equitable workplace opportunities, and the expansion of access to employer-sponsored plans.