Why Black Health is Wealth: Financial Experts Talk Black Retirement

By Megan Kirk

The ever-growing racial wealth gap leaves little room for savings. As African Americans earn roughly 30 percent less than their white counterparts, putting away money for a rainy day can prove to be difficult. As African Americans age, financial stability becomes a major concern. Planning for the golden years is essential to survival of older generations, yet African Americans are falling behind.

According to a 2021 study from Investopedia, more than half of African American households have no retirement savings at all. On average, white Americans ages 25 to 61, on average, have retirement savings of close to $80,000. African Americans in the same age group have saved just $29,000. This disparity helps to further expand the gap in wealth for African Americans.

“In most states, you must be 18-years-old or older to open a brokerage account. According to a Morning Consult report, 39 percent of adults started saving for retirement in their 20s. Experts suggest to start saving for retirement when you begin working. If you save $4,500 per year over 45 years, you could have more than $1 million by the time you retire,” said Omari Hall, Learning Experience Designer, GreenPath Financial Wellness.

Financial advisors are encouraging African Americans to begin saving for their retirement. Though most employers come equipped with a 401K, there are other sources for financial investment that may yield a greater amount.

“An individual retirement account (IRA) is an investment account commonly used by individuals to save for retirement. Traditional IRA contributions may be tax-deductible depending on your income, tax filing status and coverage by an employer-sponsored retirement plan,” said Hall. “Roth IRA contributions, however, are not tax-deductible. Earnings grow tax-deferred and withdrawals can be made tax-free. Those who have assets in an old employer-sponsored retirement plan often move them into a Rollover IRA, where you can keep the tax benefits and choose how your money is invested.”

For employers who offer money-matching options for 401k plans, employees are encouraged to continue to contribute to the account allowing their employee to meet their contributions dollar-for-dollar.

“Contributions and earnings to an employer-sponsored contribution plan such as a 401(k) or 403(b) for employees of non-profit, tax-exempt organizations are tax-deferred. Employers often provide matching contributions to your 401(k) account that help you build up a nest egg faster. Retirement plans such as SEP, SIMPLE and Payroll Deduction IRAs are for individuals or small business owners,” said Hall.

The pandemic has made it more difficult for Black families to save money. Causing spikes in inflation and shifts in the stock market, COVID-19 has put the nation in a financial bind. Black families are continuing to bear the brunt of the financial impact.

“GreenPath encourages households to start building their savings ’muscle.’ Make savings a common culture within the household. Automatically set funds aside from your paycheck or allowance, or have funds direct deposited into an interest-earning savings account,” said Hall. “Consider adding any bonus income or tax refunds to your savings or retirement account after all other priority bills are met. An emergency fund provides you a buffer to help with unexpected expenses and could be directed towards college savings or a retirement plan.”

The Retirement Savings Contributions Credit presented by the IRS can help workers across the country create an easier way to save for life after retirement, however it’s an unknown asset to many, including Black communities. The Saver’s Credit is available for anyone 18 years and older who has contributed to an employer-provided retirement plan, either a Roth or traditional IRA account or an ABLE account. The non-refundable tax credit can be applied to the first $2,000 of voluntary contributions to retirement accounts. Under the credit, it cannot exceed a person’s federal income tax for the year.

“Saving for retirement can be difficult in the best of times, but even harder for many during the pandemic and challenging economy,” said Catherine Collinson, CEO and president of Transamerica Institute and Transamerica Center for Retirement Studies, in a press release. “The Saver’s Credit may help make it easier for people to save because it lowers their federal income tax.”

Black communities are urged to start saving early and prioritize their savings. Estate planning is also highly recommended including wills, powers of attorney and any investment portfolios to ensure wealth is passed on from generation to generation.