The COVID-19 pandemic has upset retirement confidence among Black and Hispanic Americans on top of a persistent wealth gap that contributes to disparities in retirement savings in the United States. Two new studies examine these gaps and highlight possible ways to help close them.

“Financial insecurity for people of color stinks,” Christian Weller, a senior fellow at the Center for American Progress, told RetireGuide.

Weller co-authored a study on how the pandemic affected the Black-white wealth gap for the Center for American Progress. He has written several previous reports on the impact of the wealth gap.

“We’re not talking marginal differences — Black households have only a fraction of the wealth of white households,” Weller said.

The pandemic also hit Black and Hispanic Americans harder than whites regarding retirement planning, according to another study by the Employee Benefit Research Institute (EBRI) and Greenwald Research.

But the pandemic is just one more hurdle for racial and ethnic minorities who are already at a disadvantage for retirement planning. Those households are saddled with less retirement savings and lower incomes and assets, putting them at greater risk of financial instability in retirement.

Wealth Gap Fuels Racial Disparities in Retirement Planning

Regardless of race or income, the more money someone made, the more confident they were about their retirement, according to the EBRI-Greenwald study.

“When you control for income, what you really see is the retirement confidence gap is the wealth gap is the income gap,” Lisa Greenwald, CEO of Greenwald Research, told RetireGuide.

Those gaps reflect a sharp contrast in retirement preparedness across racial lines.

Black/White Wealth Gap Affects Retirement Planning

Percentage with retirement wealth 49.8% 70.9%
Amount of retirement wealth $312,098 $482,336
Percentage with retirement accounts 40.1% 63%
Retirement account balances $110,919 $266,030

Economic and social circumstances along with job situations tend to limit racial and ethnic minority access to workplace retirement plans, according to a 2020 study in the Journals of Gerontology.

“Black and Hispanic workers have lower participation and contributions in employer-sponsored [defined contribution] retirement plans than do white workers, while Asian Americans have higher levels,” the authors wrote.

Retirement Preparation Priorities

Researchers have found cultural differences and expectations are a powerful shaper of retirement preparations.

The EBRI-Greenwald study found that Hispanic respondents in all income groups and Black respondents in upper-income groups were far more likely to help friends and family now than save for their own retirement.

“That could be an indication of a strong desire to build generational wealth,” Greenwald said.

She cites other data that suggests current needs — such as saving for a child’s college education — are a higher priority than saving for retirement among Black and Hispanic respondents.

Cultural expectations of addressing current needs make it more difficult to put away retirement savings — even among Black and Hispanic Americans who make higher incomes. And those expectations can fuel a vicious cycle.

“If people are focused on current needs, they’re not building that savings and not building wealth and are perpetuating the wealth gap,” Craig Copeland, a senior research associate at EBRI, told RetireGuide.

Debt a Bigger Worry to Black and Hispanic Americans

Greenwald calls debt an indicator of financial health, and Black and Hispanic Americans believe their debt impacts their ability to save for retirement by much larger margins than whites.

Percentage of Those Earning $75,000 or More Who Consider Debt a Problem

“Where you have generations of historic income and wealth inequality, debt can feel like more of a problem to Black and Hispanic respondents to our survey,” Greenwald said.

Child Care Disrupts Generations of Retirement Preparedness

Asian Americans, African Americans and Latinos tend to depend more on grandparents to assist with child care, according to Weller.

This is driven by a higher percentage of both parents working, jobs requiring longer hours and longer commutes with fewer transportation options.

This also may complicate retirement planning for grandparents.

“The caregiving situation for older African Americans and Hispanics adds an extra burden, and older people of color have to withdraw sooner from the labor force to help take care of grandchildren,” Weller said.

COVID-19 and Retirement Plans for Racial and Ethnic Minorities

The COVID-19 pandemic complicated retirement planning and reduced retirement confidence among Black and Hispanic Americans more than it did for white Americans.

“For many Americans, you have to work as long as you can because you didn’t earn enough during your working years to retire,” Weller said. “But for African Americans, when things go wrong [their] retirement plans are thrown into the wind very quickly. And in the pandemic, a lot of things went wrong.”

The EBRI-Greenwald study found that losing a job meant losing confidence in your retirement prospects. And as many as four in 10 Hispanic Americans lost their jobs during the pandemic. Many of those people were already worried about retirement.

“Those that were more likely to lose their jobs were those who already had low retirement confidence,” Copeland said.

At the same time, white-collar workers who could work from home continued to earn money and build savings. The EBRI-Greenwald study found that those workers actually became more confident about their retirement. But those workers tended to be disproportionately white.

A Route to Improving Retirement Confidence

Both studies highlighted bright spots that could be used to improve retirement prospects among Black and Hispanic workers.

“Black and Hispanic workers were more likely to use information that they received from their employer about retirement financial planning,” Greenwald said.

She said that Black and Hispanic workers were noticeably more open to one-on-one advice and counseling through their retirement plan. Ideally, employers could provide this assistance for all their workers.

Black and Hispanic workers were also more likely to seek financial advisors with shared cultural experiences, according to the EBRI-Greenwald study.

States are also beginning to help workers without access to a retirement plan through their employer.

“Latinos in particular have the least access to retirement plans at work,” Weller said. “Some states — California, Illinois, Oregon — have started state-sponsored retirement plans.”

Weller says these plans increase retirement savings access. Each state contracts with a vendor that sets up and administers the plan. The states regulate the plan to make sure its low cost and investments are insured. The state may also require employers with a certain number of employees to offer the plan if they don’t provide their own retirement plan.