We African-Americans have known for years that when America gets a cold, we get pneumonia. This statement especially holds true when it comes to the growing retirement crisis.
While Americans in general are severely underfunded for retirement, black Americans in particular lag even further behind. According to The Ever-Growing Gap: Without Change, African-American and Latino Families Won’t Match White Wealth for Centuries released in August 2016 by the Center for Enterprise Development’s Racial Wealth Divide Initiative, the average black household has less than $20,000 in retirement savings compared with more than $130,000 for the average white household. In fact, almost 75 percent of African-Americans have less than $10,000 in retirement savings, compared to just 48.6 percent of white Americans.
Multiple factors contribute to this wealth gap. They include reduced homeownership in the wake of the biggest recession since the 1920s. This is particularly important given that housing equity makes up a substantial portion of wealth for so many. African-Americans were especially devastated by the foreclosure crisis and the effects of underwater mortgages. As a result, significant wealth was lost in our communities due to the Great Recession.
Also troubling is the fact that more than half of African-Americans (54.3 percent) work for employers which do not offer retirement plans. Even when these plans are made available, blacks not only participate at a lower rate, but they contribute at a lower rate than their white counterparts.
When it comes to retirement security — or more appropriately called retirement insecurity — the data is startling. In a report issued by the Center for Global Policy Solutions (CGPS) addressing the retirement dilemma of African-Americans, the authors state that more than two-thirds of African-Americans are considered liquid-asset poor. This means that blacks do not possess sufficient assets to make ends meet. Further, 83 percent of African-Americans lack the resources needed to last throughout their lifetime, even with their shorter average life expectancy.
African-Americans also rely on Social Security benefits for a greater percentage of their retirement income than whites do. Social Security represents 100 percent of retirement income for more than 36 percent of blacks. This leaves many black retirees living at or near poverty levels.
What can the financial services industry do to help close the racial wealth gap? First, it is important to understand that the racial wealth gap is not entirely due to a lack of financial education or poor financial choices on the part of blacks. It runs much deeper. Decades of discriminatory policies and practices have contributed to the current financial state of African-Americans and other minorities. Some of these discriminatory policies exist to this day. We simply cannot plan our way out of this situation.
New York Life’s African-American Community Empowerment Plan represents an example of what our industry can do to help close the racial wealth gap. In an effort to change the financial future of families through inheritance, agents within the organization have committed to generating $50 billion of life insurance protection in the African-American community. By providing at least $250,000 of coverage for 200,000 families, the company is well on its way to reaching the $50 billion goal sometime this year.
The tax-free proceeds received from the insurance policies can be used by the beneficiaries to make a down payment on a home, provide startup capital for a business venture or pay for college tuition, thereby minimizing student loan debt.
Additionally, increasing the number of African-American financial advisors also can contribute to better economic outcomes for black communities. More
African-American advisors would help rebuild the trust that has eroded over the years and place a greater emphasis on the importance of working with an advisor. The American College of Financial Services has launched an African-American Diversity Scholarship aimed at doubling the number of black financial advisors from the current rate of about 8 percent over the next 10 years.
While it will take generations to close the racial wealth gap, these are steps in the right direction. The financial services industry must work alongside other thought leaders to dismantle the systemic policies that have had and continue to have a negative financial impact on black and other minority communities.