Deficit cutting will widen retirement gap for minorities

July 28, 2011

New research finds an appalling 20 to one chasm in net worth between white and black Americans, and an 18 to one gap between whites and Hispanics. The Pew Research Center found that the net worth gap has widened during the Great Recession, mainly because the housing bust disproportionately cut into the wealth of African-Americans and Hispanics.

The housing crash hurt these households disproportionately because they tended not to have much in the way of other assets, especially when it came to retirement savings. So, the Pew report — an analysis of the comprehensive U.S. Census Bureau Survey of Income and Program Participation for 2009 – points to a terribly important social problem we face today – and the growing retirement security gap confronting minority households.

This is worth keeping in mind as Washington’s debt ceiling and deficit reduction circus continues – and as the politicians and policymakers continue their flirtation with dangerous cuts to programs that will be absolutely critical to minority households in the years ahead, namely Social Security, Medicare and Medicaid.

These programs are very important to all Americans, of course. But they will be nothing short of a lifeline for households approaching retirement with little or no retirement savings, through no particular fault of their own. Traditional defined-benefit pensions have all but disappeared in the private sector, and voluntary saving through Individual Retirement Accounts or 401(k) plans are tied to several important factors where minority populations are at a disadvantage:

Income. You can’t save what you don’t earn. While there’s nothing new here, Pew reports the disparities in joblessness and income have continued during the Great Recession. Jobless rates at the end of 2009 stood at 12.6 percent for Hispanics, 15.6 percent for African-Americans and 8.0 percent for whites. Income losses also were greater for minority households.

Access. Minority workers are less likely to work for employers that offer a workplace retirement plan. Just 33 percent of Hispanic workers – and 49 percent of African-Americans – had access to a workplace plan in 2009, according to the Employee Benefit Research Institute. That compares with 53 percent of white workers.

Tax breaks. The tax breaks granted to 401(k) and IRA savers are available only to those who itemize and are greatest for most beneficial to high-income households. Taxpayers in the highest-earning quartile by income claim nearly 80 percent of the total benefits of entitlement programs for retirement accounts, and more than 40 percent goes to the top 6 percent of taxpayers alone, research shows.

The gap in retirement savings are cumulative, reflecting not just the current recession but years of inequality in income and tax policy. Pew’s data shows that Hispanic households had 53 percent less saved than white households in taxable portfolios, 401(k) accounts and IRAs at the end of 2009, while African-American households had 62 percent less than whites. The disparities aren’t much different if you exclude taxable accounts and consider only tax-advantaged retirement savings vehicles.

For many of these households, retirement security will rest entirely on Social Security, Medicare and Medicaid, the latter serving as a last resort source of nursing care.

More than 25 percent of elderly African Americans and Hispanics depend on Social Security for more than 90 percent of their family income, according to AARP, and it keeps 30 percent of these senior minority groups out of poverty. These households also are least able to afford the various out-of-pocket expenses required in Medicare, or to set aside savings for healthcare expenses outside Medicare.

So, consider what it would mean to slash Social Security and Medicare for these vulnerable retiree groups. Deficit hawks want to boost Social Security’s retirement age and cut the program’s annual cost-of-living adjustment – moves that will reduce monthly benefits 20 percent and 8 percent, respectively. And they want to increase the Medicare eligibility age from 65 to 67.

 

9 comments

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Posted by Retirement security for minorities hangs in balance of debt debate | RetirementRevised | Report as abusive

“The tax breaks granted to 401(k) and IRA savers are available only for those who itemize”

FALSE.

These are “above the line” deductions.

Posted by Dangerman2 | Report as abusive

as americans age, black people are disproportionately affected by effects of caring for aging parents. alzheimers and diabetes cast a heavy toll. long term care isn’t part of the financial plan for many elderly people of color. so as parents fall victim to alzheimers and diabetes, the cost of caring for them falls on the shoulders of their children. likewise, a significant # of black grandparents and probably latino grandparents are parenting again (eg raising their grandkids). often this is being done on SS or retirement income. it’s not easy.

i listened to an economics presentation at AEA in 2009 on wealth differences of ‘native born’ black people versus black immigrants of africa and the caribbean. ‘native born’ black people have less net wealth. she looked at the usu factors such as education, income, etc. but she didn’t look at family structure and responsibilities. I see it/hear it every week — a grandparent struggling to raise grandkids, families struggling to care for family w/ alzheimer’s.

Posted by TomB22 | Report as abusive

“Through no particular fault of their own”

This is a broad brush type of statement that I have a hard time accepting.

“terribly important social problem we face today”

I completely agree, however I think we disagree on the steps that should be taken to work on this problem. There is an element of personal responsibility that is left out of your analysis that in my opinion needs to be addressed. We may not be able to work it in quickly enough for this generation, but it needs to be part of continuing education for the next.

Posted by TheIndependent | Report as abusive

I really wish you people would get something straight, because I am tired of seeing it as a “given” in news articles.

Hello! Not all whites are wealthy!

Also, not all blacks or Hispanics are poor.

It is a stereotype that I am getting VERY tired of seeing, and I consider it to be racist and insensitive.

What we have is a “wealthy problem,” versus all other people — regardless of their race — who are suffering (and are about to suffer a whole lot more if the wealthy manage to jam this legislation down the throats of the American people).

For God’s sake, at least get your basic facts straight, before writing a story like this.

And yes, I am white, but one who depends heavily on Social Security to survive, and like most elderly of all races, am not in very good health.

Taking my benefits away from me would be just as devastating as it would to most blacks or Hispanics, because I will lose my house and everything I worked for my entire life.

To end up on the street, which is what would happen, because I have no other family or resources is literally a death penalty for me, and no one in this government seems to give a damn.

Posted by Gordon2352 | Report as abusive

To TomB22:

From the tone of your comment it sounds as though you were born wealthy, or at least not poor. The situation you described is the one I was born into — extremely poor and raised by my grandparents, whose sole source of income was Social Security. I would not be alive today, if it were not for their care.

And as I pointed out in another posting in this article, I am white and now living on Social Security.

You say “its not easy,” but outside of listening to lectures about the poor, how would you know?

You have to be born poor to understand what that really means in this society, no matter what color you are.

Arguably, there are variations on a theme depending upon race, but generally being born poor is a death sentence in this country — sometimes they kill you fast (as in “cannon fodder” for war — I am a Vietnam-era veteran), and other times they do it slowly over a lifetime by bleeding you to death financially.

But the important thing you learn early in life is that you really don’t have a chance, barring some freak circumstances (such as sports ability), and you will remain poor because the system is rigged to reward the wealthy, no matter how much they do not deserve it.

What matters most in this country is what you are, not who you are.

Yes, by my ability to express myself, you know I have a college degree, but it was ALL paid for by work-study and student loans. And I certainly didn’t party my way through school, as they do at many wealthy universities.

I went to a state school which gave me an education worth having, BUT not to the wealthy who look first at where you went to school, not your job qualifications.

Yes, I know there is racial bias, which is wrong.

I was not brought up that way by my grandparents, but what is happening now is “reverse discrimination” against whites, which is just as wrong.

Sorry, but I had to digress from the major point I was making — the “dirty little secret” in this country is that there IS rampant discrimination occurring all the time, but the “right color” is GREEN that really counts, and not necessarily white, black or Hispanic (or any other race, for that matter).

Posted by Gordon2352 | Report as abusive

[…] 3. “Deficit cutting will widen retirement gap for minorities” (Reuters Money blog, Jul. 28, 2011). blogs.reuters.com… […]

Posted by CAAR E-Clippings No. 2883–July 29, 2011 « CAAR E-Clippings | Report as abusive

So, if you read my previous two comments, perhaps you are wondering how come I am “white” with a college degree, and living on Social Security.

I managed to “keep up” with my wealthy peers, by working hours only a lawyer could appreciate, only to watch them being promoted and retained, while others like myself were being laid off.

How do I know this? Because, my degree is in accounting, and I’ve seen the international corporate world from the inside — yes, all those secret meetings with no records kept really are a fact. The reason I sat in on many of them is because they needed my financial analysis, and were not at all shy about discussing their plans in front of me.

More importantly for me personally, I’ve sat in on meetings whose sole purpose was to “cull” those not deemed worthy of the “corporate image” that the leaders wanted to project. Never mind some of these people had spent their entire lives working diligently for the company.

They targeted especially those who were “advancing in years,” so to speak, because there was always a fresh crop of eager young (mostly wealthy, unless someone could demonstrate an unusual ability they needed) college graduates from the “right schools” to groom for company management. And, as an additional bonus, the young will work harder for less, and not be a potential problem with labor costs and benefits.

I managed to hang on until my late 50s, at which point I began to have trouble with “staying in the loop” with top management and I was laid off shortly before I turned 60 years old.

It is truly amazing to see how quickly your life savings can disappear, when you are forced to exist solely on unemployment for years at a time.

Anyhow, I barely managed to make it to “early retirement” at age 62, and now I have plenty of time to realize how badly the system scams anyone who isn’t made of the “right stuff,” meaning with the right social background and contacts to further the goals of the company.

Right now the latest manufacturing facility I worked at is somewhere in China, and some Chinese person has my former job.

All this because of free trade, which benefits no one but the wealthy, regardless of what they tell you. It’s set up that way, which is why this country is in such bad shape, but that is another story for another time.

How do I know?

As I said above, I’ve seen the game being played from the inside and I know exactly how they do it — all perfectly legal of course — which is what I mean when I say the game is so rigged in their favor, if you are not one of them — the right “green” credentials (or useful in some other PC way) — you will never have a chance to succeed.

There is no such thing as a “level playing field.”

Am I bitter? You have NO idea!

Do you care about my personal sob story?

Probably not, but the reason I am telling you this is to illustrate my point that it is not about race.

As I said, the “dirty little secret” is the wealthy protect their own — and count on people like you to “read” it as racial bias, because that distracts you from understanding what the real problems in the country are.

The “inconvenient truth” is that everything you see is designed to benefit and protect the entrenched wealthy and privileged.

It is a situation that is rapidly growing worse, until now it is clearly critical.

Now they want the poor to literally sacrifice themselves so the wealthy don’t have to be inconvenienced by having to cut back on their lavish lifestyle — THAT is the real truth about what is going on.

Posted by Gordon2352 | Report as abusive

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Posted by In the News: Minority Retirement Options May Dwindle with Deficit Cuts; MTV Promotes HIV/AIDS Awareness with iCondom and More – Black Enterprise | Report as abusive

What do you mean by those “approaching retirement with little or no retirement savings, through no fault of their own”? I the son of uneducated parents and an alcoholic father who was either getting drunk and doing bad things or sleeping it off, worked and paid my way through college, went on to get an advanced degree, move to Asia selling American high tech, moved on to China and built a business there which now has 100 employees, came back to the USA and am building a high tech business here that now has four employees. Perhaps this was through no fault of my own either…

Posted by Truth_Teller | Report as abusive

[…] the housing bust disproportionately cut into the wealth of African-Americans and Hispanics.  Read more here. Bookmark […]

Posted by Deficit cutting will widen retirement gap for minorities | AAPCI Blogs | Report as abusive

It does no good whatsoever to provide analyses of racial problems in the USA as if it were 1965. We are over one half century beyond the usefulness of that thinking.

What percentage of hispanics, for instance, were US citizens or are the children of US citizens as of 1965? Not many. The USA is a dynamic place and is in the midst of massive racial and social change. The country that will emerge in the next decade will little resemble the trite black / white 60’s style racial analysis presented here. White America has been eliminated as the dominant racial group. It certainly looks like the USA will either speak Spanish or be bilingual in less time than has passed since 1965.

We need to think about 21st century America, not 20th century. Yes, that will upset a number of political sinecures but then that always happens. Whipping up racial tensions is a dangerous business. It is no longer 1965.

Posted by txgadfly | Report as abusive

The Republican agenda has always been to totally reverse the progress in economic justice that began with the great reforms of Franklin D. Roosevelt and the New Deal. Consider the direct consequence of the economic crisis that deregulated Wall Street greed has brought, particularly in reversing the gains made by the most underprivileged sectors of the population. A Pew Research Center study from 2005 to 2009 found that the wealth gap between Whites and each of the nation’s two largest minorities, Hispanics and Blacks, has widened to unprecedented levels amid the housing crisis and the recession. The disparities are the greatest since the government began tracking such data a quarter-century ago.

There is plenty of suffering to go around as a result of the deep recession. The wealth of Whites in that period only declined by 16 percent, not to mention the ever-greater chasm between the top 2 percent and everyone else. In fact, the net worth of the top 2 percent actually increased during the recession and jobless recovery. That’s the same 2 percent whose tax cuts Republicans are determined to preserve no matter the consequences to the rest of the country.

Posted by Yellow105 | Report as abusive

[…] From Reuters: […]

Posted by Deficit Cutting Will Widen Retirement Gap for Minorities | FavStocks | Report as abusive

[…] From Reuters: New research finds an appalling 20 to one chasm in net worth between white and black Americans, and an 18 to one gap between whites and Hispanics. The Pew Research Center found that the net worth gap has widened during the Great Recession, mainly because the housing bust disproportionately cut into the wealth of African-Americans and Hispanics. […]

Posted by Deficit Cutting Will Widen Retirement Gap for Minorities | The DOLLASIGNeBlog | Report as abusive