Can a Two-Legged Stool Stand?

by Wilhelmina A. Leigh, Ph.D.
originally published in The Florida Courier

For today’s working adults, retirement is more likely to be based on the safety-net level of benefits from Social Security, supplemented with personal savings and investment.

The catch is, however, that too many African-Americans are saving too little for retirement.  The fact that 70 percent of African-American workers had saved less than $25,000 for retirement, according to a 2007 survey by the Employment Benefit Research Institute, suggests there will be little “gold” in our golden years.

The ‘stool’

Traditionally, retirement income has come from three sources – Social Security, employer pensions, and personal savings and investment –a three-legged stool.  The ongoing, gradual disappearance of employer-sponsored defined benefit pensions (that provide a monthly payout based on years worked and salary level) and their replacement by employer-sponsored defined contribution retirement plans (that provide retirement income based on the amount of employee contributions while working) suggests, however, that the retirement income stool will soon have only two legs.  One leg will be Social Security, and the other will be personal savings and investment – both through an employer and independent of employment.

Nearly two of every five African-Americans in a 2009 Joint Center poll indicated that they expected Social Security to be a major source of income during their retirement.  This expected major source of retirement income, however, provided average monthly retirement benefits at the end of 2009 of only $1,120 for African-American males and $960.50 for African-American females.  These monthly average benefits generate an annual income of $10,458 – slightly greater than the federal poverty threshold for persons 65 years and older.

Problems coming

Over the next 75 years, if no modifications are made to the Social Security program, payments will fall below their already modest levels.  Because FICA taxes paid into the Social Security system by workers in a given year are expended that same year to fulfill obligations to current beneficiaries, the retiring of the large Baby Boomers born between 1946 and 1964; increased life expectancy of the “older” old; and declining birth rates – threaten the solvency of Social Security.

Employer pensions and retirement plans do not look especially promising for African-Americans, who are more likely to be unemployed and underemployed than other racial/ethnic groups – a fact that has been unchanged for many decades.

When employed, African-Americans are hit hard by the shrinking availability of employer-sponsored retirement plans. Though more than half (56 percent) of Black workers ages 25-59 were offered retirement plans or pensions by their employers in 2009; less than half (45 percent) actually enrolled in them.  In addition, low-income earners – among whom African-Americans are overrepresented – are less likely than high-income earners to be offered employer retirement plans.

African-American workers constitute 20 percent of the low-income labor force –individuals whose earnings are less than the federal poverty level even though they are employed for 27 or more weeks per year – in contrast to the 11 percent they make up of the workforce at all income levels. Personal saving and investment independent of employment (for example, Individual Retirement Accounts) become the major source of income to supplement Social Security retirement benefits.

Income is critical

A key issue is having the disposable income to save.  A 2009 Joint Center poll found that 53 percent of African-Americans at all income levels – and 65 percent with income of $35,000 or less – wanted to save but did not have enough money to.  This same poll found that African-Americans are less likely than Whites to have invested in IRAs (28 percent vs. 47 percent), in stocks or mutual funds (27 percent vs. 49 percent), or in bonds (17 percent vs. 27 percent).

Raising our current retirement income status from only 30 percent who have saved $25,000 or more for their retirement should become a priority for African-Americans.  Otherwise, our definition of retirement may become confined to working either full-time or part-time until the day we die – or eking out an existence on Social Security benefits alone.

Wilhelmina A. Leigh is Senior Research Associate of the Economic Security Initiative of the Civic Engagement and Governance Institute at the Joint Center for Political and Economic Studies. More information on Dr. Leigh and her work can be found at the Joint Center website.
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