The Racial Retirement Gap in 7 Facts

Persistent disparities across American economic life squeeze Black workers’ opportunities to save for retirement

Andy Markowitz,

AARP

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Published October 18, 2023

/ Updated February 05, 2024

unequal sign with black worker sitting on lower dash of the sign and white worker sitting on top

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Building a financially secure retirement is an uphill climb for many Americans, but it’s especially steep if you are Black.

The numbers paint a stark picture. Black workers ages 51 to 64 are the least likely among all racial and ethnic groups to have a retirement account, according to a July 2023 report from the U.S. Government Accountability Office. When they do have one, their median balance is far below that of similarly aged white adults across all income levels.

The savings gap is just the tip of a very large iceberg. Median overall net worth of white households was more than six times that of African American households — $285,000 to $44,900 — in 2022, according to Federal Reserve data. These disparities are the product of many others, spanning American economic life — legacies of the inequities that echo and accrue through Black Americans’ working lives.

Retirement equity “doesn’t mean everyone will have an equal balance. People have different financial lives, different goals and different obligations,” says Karen Andres, director of the Retirement Savings Initiative at the Aspen Institute Financial Security Program. “But the disparities that we can see in retirement savings balances are so large that it would seem that our retirement savings system is not giving everyone what they need.”

Those racial disparities have large, lingering effects on financial security in later life, when people have fewer avenues to compensate for inadequate retirement savings. Black Americans age 65 and up rely far more heavily than their white counterparts on Social Security for retirement income, and they are more than twice as likely to live in poverty.

Here are seven facts that help illustrate why Black workers often face difficulties in saving money for retirement.

1. Black workers are paid less

black workers earn seventy six cents for every dollar earned by whites

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Black families are also significantly more likely to have very low earnings. The Federal Reserve’s 2021 Survey of Household Economics and Decision-Making found that 43 percent have annual income under $25,000, compared to 20 percent of white families.

Retirement inequality is “rooted in wage inequality,” the Aspen Institute’s Leadership Forum on Retirement Savings said in a 2021 report. “If you don’t have income sufficient to cover day-to-day bills and accumulate the short-term savings needed to handle emergencies, how will you be able to save for the long term while keeping intact whatever you do manage to set aside?”

Lower income doesn’t just dampen savings. It also reduces future Social Security payments, because these benefits are based on a worker’s earnings history.

2. Black unemployment is higher

the black unemployment rate remains roughly double that of white workers

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The 2-to-1 unemployment disparity is “one of the most durable and defining features of the U.S. labor market,” economists Valerie Wilson of the Economic Policy Institute and William Darity of Duke University wrote in a March 2022 paper on inequality in employment. It endures through good economic times and bad, they found, and is relatively constant across age, gender, region and education level.

The reasons for this higher unemployment rate have long been debated, with possible causes ranging from racial discrimination to where the job opportunities are. While the reasons are still largely unsettled, the financial consequences are much clearer.

“Higher rates of unemployment for Black workers mean they are more likely to experience a loss or lack of income over the course of their working years,” Wilson says. “Even for those fortunate enough to have savings, higher rates of unemployment make them more likely to have to dip into those savings to make up for the loss of income.”

3. Black workers are less likely to receive workplace retirement benefits

only forty seven percent of Black workers have access to a 401K or other workplace retirement plan as compared with fifty eight percent of White workers

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Even among those private-sector workers who have access to a retirement plan, participation rates are lower for Black employees. According to data from the U.S. Census Bureau’s Current Population Survey, 53.6 percent of full-time Black workers ages 21 to 64 were enrolled in a workplace plan in 2022, compared to 67.3 percent of similarly situated white workers.

“Black workers are concentrated in lower-wage jobs, often in the service sector, often with high turnover, where employers just don’t offer the benefits. Or maybe [workers] never get to stick around long enough to be able to qualify for benefits, including participating in a retirement plan,” says Nari Rhee, director of the Retirement Security program at the University of California Berkeley Labor Center.

4. Private-sector pensions are increasingly rare

only eleven percent of private sector workers now have pensions compared to thirty eight percent in nineteen eighty

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Traditional pensions that offer a guaranteed retirement income have largely been supplanted in the private sector by 401(k)-type savings accounts. That primarily benefits higher-wage workers who earn enough to contribute regularly, Rhee says.

“Access to pensions and other benefits through unions in American industry was a really important path to middle-class economic security for the Black community,” she says. “The shift from pensions to 401(k)s has disproportionately hurt low-wage workers and groups that are concentrated in the low-wage labor markets.”

In the public sector, where pensions still predominate and Black workers (especially Black women) are overrepresented, these traditional retirement plans “play an outsized role in the retirement security of older adults and reduce wealth inequality by race and gender,” according to a September 2023 report by Rhee on the impact of pensions on retirement inequality.

5. Fewer Black households own their homes

only forty seven percent of black households own their home compared to seventy five percent of whites

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That 30-point gap in home ownership rates has barely budged in the past 50 years, depriving many Black families of a crucial vehicle for building wealth, the Treasury Department said in a November 2022 report on racial disparities in economic security.

While the discriminatory lending practice known as redlining was outlawed decades ago, Black applicants are still denied mortgage loans at nearly twice the rate of whites, according to the National Association of Realtors.

Black homeowners also realize significantly lower returns on home sales than whites, on average, a September 2021 study by the National Bureau of Economic Research found. Homes in majority-Black neighborhoods in general are consistently undervalued, according to recent research by the Brookings Institution.

6. Black families are less likely to inherit wealth

only eight percent of black families get an inheritance compared to twenty eight percent of whites

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Inheritances and other intergenerational wealth transfers, such as parental gifts to help kids with big-ticket expenses such as college or a first home, “directly increase disposable income for the recipient,” says Dania Francis, an assistant professor of economics at the University of Massachusetts Boston.

That can have a major knock-on effect for nest egg-building, says Francis, whose research focuses on racial disparities in wealth accumulation. “If you have to spend less of your paycheck on housing costs and on paying back student loans, you are less likely to balk at the idea of contributing 10 percent or 15 percent of your paycheck to retirement savings.”

For Black families, wealth transfers often go in the opposite direction. Research by the St. Louis Fed found that Black college graduates are nearly three times as likely to financially support a parent as college-educated whites.

7. Black families have less saved for emergencies

average emergency savings of black families is jsut over two thousand dollars while white families have average of twelve thousand

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Across racial and ethnic lines, almost all American families have some form of easily accessible assets such as checking accounts, savings accounts and prepaid cards, but Black households have the least money in them, according to the Fed's latest Survey of Consumer Finances. Those lower balances put pressure on family finances in times of short-term need, with potentially long-term consequences.

For example, Black retirement savers are substantially more likely to make an early (pre-age 59½) withdrawal, according to researchers from the Massachusetts Institute of Technology, Harvard, Yale and the U.S. Census Bureau. Along with reducing future returns, such withdrawals typically trigger hefty tax penalties “that leave these families even farther behind on their retirement savings journey,” Francis says.

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Andy Markowitz is an AARP senior writer and editor covering Social Security and retirement. He is a former editor of the Prague Post and Baltimore City Paper.