How we spend our retirement years looks different for every person. Everything—from when retirement might start to how time will be spent—can vary drastically. But for Americans who identify as people of color (POC), how they plan for retirement has an added layer of complexity resulting from the long-standing racial wealth gap in this country. This gap means that people of color face significant hurdles throughout their lives with their finances, particularly when it comes to saving for retirement.
(As a provider of annuities that can help with retirement income, Allianz Life could benefit from the advice offered in this article.)
Our recent Retirement Risk Readiness Study, which included input from Americans who identify as people of color, found that more than half of these respondents believe they are currently saving enough in a retirement account (55%), and a nearly equal amount (52%) feel they have plenty of time to save for retirement.
While they may feel confident in their outlook, there is a potential misinterpretation of readiness that may be putting POC at risk for financial insecurity in retirement. Some contributing factors, like the wealth and housing gaps in America, have impacted communities of color for decades. When you consider all these factors, you can start to see some of the clear distinctions that may make retirement planning different for people of color.
For example, a study from the Urban Institute found white family wealth was seven times greater than Black family wealth and five times greater than Hispanic family wealth in 2016. In addition, potentially lower home equity and lower wages for POC can directly translate to less money put toward savings and investing in retirement. As a result, many people in communities of color may find themselves behind in their finances and, in turn, their retirement strategy.
Unfortunately, there is no easy fix to this issue. But there are things the financial services industry can do right now to help POC make progress toward an achievable retirement strategy.
Increase outreach to POC clients
Managing all aspects of a financial strategy can be complex, so a solid first step in building a sound retirement strategy is to find a financial professional to help. However, the Retirement Risk Readiness Study found that less than one-third (32%) of POC are currently working with a financial professional.
A contributing factor behind this lack of connection may be that financial professionals simply aren’t doing enough to make that initial contact with clients from POC communities. As a result, these clients don’t recognize the importance of professional advice and benefits that working with a professional can have over going it alone.
It can be particularly challenging for POC to find someone they connect with who also understands the nuances of their cultural background and how their unique family circumstances may affect their financial decision-making. Addressing this issue must be a priority for our industry going forward if we want to be more effective in supporting POC clients.
Networking in communities of color is a good place to start developing deeper relationships that can lead to more connections. By investing the time to learn more about communities of color and how they navigate their spending and saving challenges, financial professionals can provide better advice on both current financial activity and future retirement strategy.
Highlight specific risks unique to POC retirement plans
Another important thing our industry must consider is how we can help POC mitigate specific risks that could derail their retirement strategy. While some risk exposure is necessary in any financial strategy, understanding all the various risk factors—particularly those that are unique to POC households—is an important step in helping protect their retirement assets.
A good financial professional should be able to recognize and understand the unique dynamics that can exist within many POC households and help them understand how their specific situation may affect their retirement planning. For example, many POC tend to prioritize spending on their children’s education or caring for elder family members above setting aside anything for their own retirement.
While it is often necessary to focus on supporting extended family in the present, many POC can use guidance on how they can achieve short-term goals while also saving for their own financial future.
Taking the next step
Building a solid retirement strategy takes careful consideration and time. And while the racial wealth gap persists, POC will continue to face hurdles as they plan for retirement. As they navigate these important preparations, it’s crucial that our industry does more to understand, respect, and prioritize different cultural backgrounds and the way those backgrounds influence each individual’s approach to finances. With more focus on cultural awareness, we can do a better job of helping POC feel more confident about their golden years.
Cecilia Stanton Adams is chief diversity and inclusion officer at Allianz Life Insurance Co. of North America.
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