Does Race Play a Role in Retirement Readiness?

Lori Lucas, the president and CEO of the Employee Benefits Research Institute joined Morningstar’s The Long View podcast this week to discuss retirement planning, defined contributions, and healthcare.

Here are a few excerpts on EBRI's Retirement Confidence Survey and demographic differences from Lucas' conversation with Morningstar's Christine Benz and Jeff Ptak:

The Retirement Confidence Survey

Ptak: I think we want to dig into some of those facts and figures you just cited a little bit later in the conversation. But before we did that, I wanted to talk about another signature piece of research that EBRI puts out, which is the Retirement Confidence Survey. What are you aiming to measure with that survey? And what jumped out at you as you looked at the 2021 data? Lucas: Well, the Retirement Confidence Survey is actually the longest-running survey of its kind, and it measures both worker and retiree confidence. So, it compares the two. And in its essence, what it's trying to get at is how do the retirement prospects of workers today compare with people that have retired previously under an arguably very different retirement system, where they had a much higher probability of having a defined-benefit plan, and maybe even retiree medical. So, what jumps out is that the retirement confidence of workers during the pandemic has been pretty high. Over seven in 10 workers said that they were at least somewhat confident about their retirement in the most recent survey, and that's actually the highest level since 1993 when we asked that question for the first time. And likewise, eight in 10 retirees are confident that they will have enough money for a comfortable retirement. That's also a pretty high number, the highest since 2005. Now, the one caveat here is that things dramatically change when workers report that they have directly experienced an income or job loss, and their retirement confidence is significantly lower. So, this is about people who were able to maintain their work in the pandemic, if they were working. And in retirement, of course, it also corresponds to the fact that the market has been pretty strong, and I think that also informs the retirement confidence we're seeing.

Are You Confident that You Will Be Ready for Retirement?

Benz: I want to ask about just how good people are at knowing whether they should be confident. Do you have any views? Or has EBRI dug into that? So, how does someone's stated retirement confidence square with what they actually have and their wherewithal to fund retirement? Have you looked at that issue? Lucas: We looked at it in the Retirement Confidence Survey as well in a couple different ways. And unfortunately, our survey shows that only half of workers say they have even tried to calculate how much money they will need in retirement. And so, this is after arguably quite a long period of time in which we've tried to implement financial literacy efforts, employers and policymakers alike. And, unfortunately, that number has not changed since 1999. People are not doing the work to calculate how much they even need in retirement. And then, the other way we look at the readiness of people for retirement is by comparing where people who are working say about what their retirements going to look like, versus what people who are retired actually report it looks like, and we often see misalignments there. So, for example, people throughout the survey's history have reported as they work that they expect to retire much later than retirees actually say they retired. And in the most recent survey, retirees said that they retired at age 62 at the median. But workers say that they expect to retire at age 65. So, people think they're going to work longer than they probably actually will. They also think they are likely to work in retirement, and when in reality, very few retirees say they do. About three quarters of workers say they work for pay in retirement--that's their intended goal--while only a third of retirees report that that actually happened.

Retirement Confidence and Race

Ptak: EBRI also looks at the retirement confidence levels in various demographic groups. A report on the findings among Black and Hispanic workers noted that "Black and Hispanic Americans reported disproportionately lower financial resources, and how they feel about retirement and financial security is clearly impacted by having less resources." What are some things employers can do to help improve financial wellness and retirement preparedness for Black and Hispanic workers? Lucas: The real sobering finding about Black and Hispanic workers' situation is that even when they're in the same income bracket as their white counterparts, they're worse off financially. So, it's not just because of income inequality; you're holding income steady. We're still seeing differences in their financial disparities compared with their white counterparts. The other kind of dispiriting thing is that Black and Hispanic workers and retirees, they really don't know where to go for financial advice in greater numbers than their white counterparts. So, even when they are seeking the financial advice, they don't feel really confident about where to go to get it. Employers really do need to address the unique needs of these groups. For example, even thinking about what it is that Hispanic Americans, for example, are looking for when it comes to financial help. The Hispanic workers who filled out our survey, said they were more likely to agree that it's important to help friends and family, rather than save for their own retirement compared with their white counterparts. So, thinking about this, the messaging that employers should be directing to these cohorts are ones that's going to resonate with them. And if it's tone-deaf to the fact that they're really prioritizing helping friends and family, then it's not going to resonate with these workers. And likewise, both Black and Hispanic workers were more likely to consider debt to be a problem for their household than white American workers in each of the income groups. So, again, whatever help the employers are providing needs to acknowledge that this is an obstacle and help to solve that as part of the larger retirement equation.

We are Missing Demographics in Financial Advising

Benz: I was struck by the financial-advice component of the survey as well, where sticking with Black and Hispanic workers, a high percentage said that working with an advisor with a similar life experience or upbringing was important to them. And yet, when you look at the financial-services industry and the percentage of certified financial planners, for example, it's really low in terms of Black and Hispanic folks in those jobs. So, how does the financial-services industry grapple with this, where its workforce isn't that diverse and it's attempting to serve a diverse population? Lucas: There have been a lot of efforts and more recognition of the importance of these efforts in the past couple of years. And even some really powerful initiatives like the FARE Coalition, which is seeking to increase the presence of people of color in financial services. So, hopefully, there will be more availability of a wider and more diverse group of financial planners going forward. But the other thing to keep in mind is, in addition to that one finding, that obviously people feel comfortable with people that seem to understand their situation from a life perspective, the survey also found that across race and ethnicity, people in the survey said that they also thought it was really important that their financial advisor had expertise with their particular financial goals, and that they specialize in households with similar assets. So, there are other ways that people can get comfortable with financial advisors, even if they don't perhaps have the same exact life experiences and don't look like them.

This article was adapted from an interview that aired on Morningstar’s The Long View podcast. Listen to the full episode.