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Difficult retirement looms for ethnic workers, grandparents

Paul Kleyman | 9/27/2013, 6 a.m.

A disturbing new analysis from the Economic Policy Institute (EPI) pulls together “a picture of increasingly inadequate savings and retirement income for successive cohorts and growing disparities by income, race, ethnicity, education and marital status.” It’s one of several recent studies revealing a difficult financial future for tomorrow’s ethnic retirees and today’s grandparents.

EPI’s report, Retirement Inequality Chartbook: How the 401(k) Revolution Created a Few Big Winners and Many Losers, warns of growing ranks of elders having to struggle economically due to the shrinking number of pensions to supplement Social Security and the meager returns — for those who have pensions — from the newer pension funds.

The shift in recent years has been from long-standard employer-based pensions that provide retirees with a well-defined benefit to 401(k)s, which require workers to pay into their own investment accounts and to do so with few clues regarding which stock-market funds to chose.

Although many are paid a matching contribution from their employer and 401(k)s offer workers the advantage of being able to take the pensions from job to job, these plans also let employers off the hook with smaller contributions and expose workers to the ups and downs of stock and bond markets.

According to the EPI’s study, the overall effect on racial and ethnic groups is that “white households have more than six times as much saved in retirement accounts as Hispanic and black households.”

The report points out that as many African American workers as whites used to have employer-based retirement plans, but blacks have “lagged in recent years.” Latino workers “have fallen even further behind,” according the study.

In addition, writes the EPI, “Unmarried people, especially women, tend to be less prepared for retirement than their married counterparts.”

The study concludes, “The existence of a retirement system that does not work for most workers underscores the importance of preserving and strengthening Social Security, defending [traditional] defined-benefit pensions for workers who have them and seeking solutions for those who do not.”

Retirement Savings Erode at ‘Alarming Rate’

The EPI chartbook piggybacks on findings from the widely cited 2012 report, 401(k) Plans In Living Color II: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups.

This study, by the market research firms Ariel Investments and Aon Hewitt, determined that although the tough economy “led all workers to dip into their retirement savings … minorities have been the hardest hit.”

Examining 2010 data from 60 top corporation 401(k) plans, Ariel and Aon Hewitt showed that “compared to their Asian and white counterparts, African American and Hispanic employees are eroding their retirement savings at an alarming rate.”

The study found, for instance, that in the wake of rising unemployment in 2010, “African American employees took hardship withdrawals more than any other ethnic group.”

The study found that the two-thirds of African Americans and almost six-in-10 Hispanics who left their employer in 2010 cashed out their 401(k) balances, compared to four-in-10 white employees and just one-third of Asian workers.

Hard Times for Grandparents