Recent Evolution of Retirement Readiness for Blacks and Hispanics

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This figure is a line graph titled, Households with Expected Retirement Income Less than the Poverty Line. The y-axis represents a share of the population and ranges from 0 to 60 percent, increasing in increments of 10. The x-axis is time and ranges from 1989 to 2019.  There are 3 lines on the figure: Non-Hispanic Blacks, Hispanics, and Non-Hispanic Whites. The Non-Hispanic Blacks line starts around 55 percent and dips to 25 percent in 2001 before dropping further to 15 in 2007 and then bouncing back to above 20 percent in 2019. The Hispanics line starts close to 40 percent and dips to 15 percent in 2001. It stays at that general level for the rest of the study period. The Non-Hispanic Whites starts around 7 percent and does not experience much fluctuation.  The source line reads, Source: Researchers’ calculations using data from the SCF.

Americans’ readiness for retirement depends on three primary income streams — pensions, savings, and Social Security. These income streams have evolved over time in different ways for different racial and ethnic subsets of the US population.

In Trends in the Retirement Preparedness of Black and Hispanic Households in the US (NBER Working Paper 31532), Edward N. Wolff uses data from the Survey of Consumer Finances to construct three comprehensive measures of retirement adequacy for each household: annual projected retirement income, whether the household’s projected retirement income places them above the poverty line, and the percentage of the household’s preretirement income that is projected to be replaced by retirement income. He uses population-level data on these three measures to document trends in retirement preparedness both overall and by race and ethnicity.

The gap in retirement security between White and non-White households narrowed between 1989 and 2007 but expanded over the subsequent decade.

From 1989 to 2007, Black and Hispanic households made substantial progress in terms of their expected income security during retirement. Mean retirement income increased from $31,200 to $58,400 among Black families and from $59,400 to $95,600 among Hispanic families, narrowing the gap between them and White households, who increased from $92,400 to $164,100. In 1989 the median retirement income among Black families was 18.6 percent of that of White families. In 2007, it was 50.8 percent. Hispanic families had median retirement earnings that were 33.5 percent of those of White families in 1989, and 43.8 percent of those of White families in 2007. The percentage of households whose expected income during retirement placed them below the poverty line fell from 56.1 percent in 1989 to 14.0 percent in 2007 among Black families and from 39.6 percent to 18.8 percent among Hispanic families.

After 2007, however, the improvement in retirement income security stopped and, among Black households, reversed. Between 2007 and 2019, Black households’ median retirement income fell by 29.2 percent, while the share of those whose expected retirement income placed them below the poverty line grew by 8.1 percentage points. Additionally, the share of Black households with expected retirement income greater than or equal to 75 percent of their income at age 64 fell by 1.2 percentage points. Expected mean retirement income rose modestly, by 8.7 percent.

In contrast to Black households, Hispanic households during the period from 2007 to 2019 experienced both setbacks and gains in retirement preparedness. While average expected income during retirement fell by 12.4 percent, the share of households whose expected retirement income placed them in poverty dropped by 4.7 percentage points, and the share of Hispanic households who expected to earn in retirement at least 75 percent of what they earned at age 64 grew by 6.2 percent. For non-Hispanic Whites, mean retirement income rose by 31.0 percent over this period, although median retirement income fell by 3.7 percent.

Wolff finds tremendous variation in the composition of households’ expected retirement income by race and ethnicity. In 2019, Social Security represented 12.4 percent of White households’ mean expected retirement income, compared to 27.6 percent and 39.0 percent for Black and Hispanic households, respectively. White households were projected to draw 46.7 percent of their retirement income from non-home, non-pension wealth, compared to 15.7 percent for Black households and 15.9 percent for Hispanic households. Income from Social Security reduced poverty among retired Black and Hispanic households by roughly 30 percentage points in 2007 and by between 36 and 39 percentage points in 2019, making the program an equalizer for minority households, who tend to have less accumulated wealth than White households.

— Abby Hiller