The retirement gap: Why Black Americans face an uphill battle in saving for the future

By Megan Sayles
AFRO Staff Writer
msayles@afro.com

For many Black Americans, the dream of a secure retirement is increasingly out of reach. Despite decades of work, a combination of wage disparities, unequal access to employer-sponsored retirement plans and other economic inequalities have left Black workers with significantly less savings than their counterparts. 

This divide can be referred to as the “retirement gap.” 

“On average, African Americans have less than half the retirement wealth of White households, and, among those with a retirement account, Black households have less than one third of the median balance of White households,” said Christian Weller, senior fellow at the Center for American Progress and public policy professor for the University of Massachusetts, Boston.  “There is also no trend toward shrinking those gaps.” 

Weller and two other researchers published a report titled, “Retirement Wealth by Race and Ethnicity: Differences, Trends and Contributing Factors,” in April 2024 for the Society of Actuaries. The study found that the average retirement savings for Black households was $188,708, compared to $435,142 for White households in 2022. 

Weller explained that there are a number of factors that have contributed to the racial retirement gap. He groups them into three buckets: access to an employer retirement benefit, contributions to retirement accounts and the chance of adverse economic outcomes that make it more challenging for African Americans to save for retirement. 

According to Weller, Black adults are less likely to work for an employer that offers a retirement plan, like a 401(k), compared to White adults. The study discovered that 74 percent of Black households had access to an employer-sponsored retirement benefit compared to 82 percent of White households. Even if they do work for a company that offers retirement benefits, Weller said they are less likely to qualify for them due to factors like minimum tenure and hour requirements.  

One common misconception that the report helped to debunk is that Black Americans, as individuals, save less than their White counterparts. When income levels are similar, Black households often save at comparable rates to White households. Lower contributions for African Americans are not a result of differences in saving habits but rather a result of systematically lower earnings, according to Weller. 

One other element that influences the retirement gap between Black and White adults is that African Americans have a higher chance of experiencing costly economic challenges. 

“Those adverse economic effects include more unemployment, longer spells of unemployment, greater income instability, higher chances of falling ill or becoming disabled, greater financial demands from friends and family, less stable and more costly housing, less access to healthy and affordable food and more widespread and more costly interactions with the criminal justice system,” said Wellers. “These are some of the most widespread economic risks that impose greater costs on Black households than White households.” 

The generational wealth gap makes African Americans even more vulnerable to economic hardships and unexpected expenses, according to Weller. 

“The lack of generational wealth means that there is less wealth and thus fewer financial protections among Black households. At the same time, African Americans are more likely than White households to experience adverse economic effects,” said Weller. “They cannot rely on their own savings because they have fewer. They then turn to family and friends for help. Those that provide informal financial support have the money to help. But, they need to forego higher rates of return to keep that money liquid.”

He explained that caregiving responsibilities, which fall more heavily on Black families than their counterparts, create financial obligations that increase the need for liquidity. His study found that African Americans are saving more for retirement when they have to account for support to family and friends. However, this causes them to take out more 401(k) loans and can hinder their ability to build long-term wealth. 

Weller recommended several strategies for closing the retirement gap between White and Black households. They include: broader access to retirement savings plans, like automatic individual retirement accounts sponsored by state governments; automatic increases in contributions rates for retirement plans, like the upcoming Saver’s Match; and expanding social programs. 

He suggested increasing access to social security, unemployment insurance, workers’ compensation, paid medical and family leave and affordable health insurance. This can help to aid Black households who face greater economic obstacles. 

“An equitable retirement system is one where everybody has the same chances to save for their retirement, including equal access, progressive savings incentives and help in reducing risks and costs of adverse economic events,” said Weller. “For one, this is fair, but it’s also critical in the U.S., since public policy has always expected people to shoulder some of the costs of saving for the future. That expectation then also means that public policy needs to make it possible for people to save for their future.”