United States
Race, Retirement, and the Savings Gap
Our latest research looks at where the largest retirement savings gaps exist...
What can the retirement industry do to narrow the disparities?
Key insights:
- Dramatic racial and ethnic disparities in retirement savings persist in the U.S., with no simple solution.
- Our research shows that Black and Hispanic workers are lagging in plan participation and savings while also facing a greater range of competing financial priorities.
- The retirement industry can act now to help close the gap with thoughtful plan design, wellness and education programs, and improved data-sharing practices.
Black and Hispanic Workers Lag in Plan Participation
Racial and ethnic gap in retirement plan participation rates among 21‑ to 64‑year‑old wage or salaried workers in the private sector
As of March 2021. Participation Rate = Share of total private sector workforce (with or without access to a retirement plan) who participate in a retirement plan.
Source: Author's calculations from the Annual Social and Economic (ASEC) supplement of the Current Population Survey (CPS), 2021. IPUMS CPS, University of Minnesota.
Access to Retirement Plans: The Root of the Problem
Accumulation of retirement savings is a three-step problem, each requiring an active decision—participation, contribution, and investment allocation. The adoption of auto features and qualified default investments have helped a lot with the last two. But widespread participation in retirement plans, the first and the most important of the three steps, remains elusive.
- Access has been a persistent problem. Some employers, particularly small employers, struggle to offer their employees a retirement plan.
- This matters because small companies employ a disproportionate number of minority groups.
- There is virtually no difference in takeup rates among employees of smaller firms and larger firms.
- Improving the number of small businesses offering retirement plans could help close the racial gap in retirement savings.
Racial and Ethnic Gaps Narrow Among Those With Access
Racial and ethnic gap in takeup rates among 21‑ to 64‑year‑old wage or salaried workers in the private sector
As of March 2021. Takeup Rate = Share of workers who decide to participate in a retirement plan if they are offered one. Source: Author’s calculations from the Annual Social and Economic (ASEC) supplement of the Current Population Survey (CPS), 2021. IPUMS CPS, University of Minnesota.
Income Inequality Drives the Participation Gap
On average, minority workers earn significantly less than their white counterparts. And, to a large extent, the difference in income drives the difference in plan participation rates.
The two racial groups with the lowest retirement plan participation rates—Hispanics and Blacks—also have the largest share of their workers in the bottom two income groups.
Lower Income Often Means Lower Participation
Retirement plan participation rates and distribution of workers of different racial and ethnic groups across different income groups
As of March 2021. Participation Rate = Share of total private sector workforce (with or without access to a retirement plan) who participate in a retirement plan.
Percent of workers measures the share of each race or ethnicity across different income groups.
Source: Author’s calculations from the Annual Social and Economic (ASEC) supplement of the Current Population Survey (CPS), 2021. IPUMS CPS, University of Minnesota.
The Challenge of Translating Income Into Savings
The growing racial gap between income and wealth suggests that lower income isn’t the only challenge making it harder for Blacks and Hispanics to save and build wealth.
Key insights:
- A fundamental principle of saving is to start early and save regularly, and we see a significant gap between whites and other minorities. 38% of white participants say that they started saving for retirement before 30, compared with only 18% of Blacks.
- Debt may also be hindering minority participants’ retirement savings progress. Black and Hispanic participants are more likely to hold every type of debt than their white counterparts.
- Minority savers have competing financial priorities that prevent them from focusing on saving for retirement.
Retirement Isn't the Only Financial Priority
Racial and ethnic difference in financial priorities
As of August 2021. Source: T. Rowe Price Retirement Savings and Spending Study, 2021. See Additional Disclosures for more information.
The retirement industry can play a key role in boosting retirement plan participation and savings among Black and Hispanic workers.
The growing racial gap between income and wealth suggests that lower income isn’t the only challenge making it harder for Blacks and Hispanics to save and build wealth.
Solutions to Help Narrow the Gap
Expand access to retirement savings plans
Use plan design to "lift all boats"
Target communications to encourage participation and saving
Increase access to financial wellness programs
Purposefully share plan data
"Thoughtful plan design, wellness and education programs, and better data-sharing practices provide opportunities for plan sponsors to support minority savers."
Additional Disclosures
The T. Rowe Price Retirement Savings and Spending Study (RSS) is an annual study that has been conducted online since 2014. The study annually surveys approximately 3,000–4,000 participants who are currently contributing to a 401(k) plan or eligible to contribute and have a balance of at least $1,000. The survey also includes an additional 1,000–1,500 retirees who have retired with a Rollover IRA or left-in-plan balance. The study investigates saving attitudes and behaviors of plan participants and retirees. The 2021 RSS was conducted between June 9, 2021 and August 4, 2021 and included 3,844 plan participants and 1,332 retirees.
Contact your T. Rowe Price representative to find out how we can take your plan to the next level.