Thread: Women, minorities, young adults not saving enough to retire

Some groups lag in money to retire

Women, minorities, young adults not saving enough, study reports

Russ Wiles - Sept. 19, 2010
The Arizona Republic

The weak economy has made retirement planning tougher for all Americans, but it's a true uphill climb for some groups.

Women, African-Americans and Latinos in general had fallen behind before the recession hit, and they'll be playing catch-up for a while. Young adults face special challenges not shared by earlier waves of workers.

"It will be tougher for our generation," said Krystal Broady of Goodyear, a 26-year-old administrative assistant. "Many of us aren't smart with money, and we've accumulated a lot of debt."

Retirement planning isn't often viewed under a demographic prism. Why single out any groups when Americans in general find themselves in a tough spot?

Just 54 percent of respondents overall feel very or somewhat confident about being able to live comfortably throughout retirement, according to a survey by the Employee Benefit Research Institute. That's down from 70 percent three years ago.

In the same survey, 54 percent of respondents reported having less than $25,000 in total savings and investments, excluding their home or workplace pension, if any. Some 27 percent said they don't have even $1,000.

"What the surveys show is very few of these people ever had a budget," said Dallas Salisbury, the EBRI's president. "If you don't start by figuring how much and where you're spending money, you'll never get control."

Gender gap

While retirement uncertainty is broad-based, members of certain groups face a heightened risk of coming up short later in life.

Compared with men, women are at a retirement disadvantage from several angles. Most immediate is the gender pay gap. Although improving, women still earn only about 83 cents for every dollar men make, leaving them less money to invest.

Then there's longevity: Women generally will need to make their money last longer since they can expect to outlive men.

Add to that a financial-literacy gap, with women saying they're less financially astute and confident than men. This shows up in a greater aversion to risk, meaning less willingness to invest in stocks and other assets that, while volatile, offer a path to long-term gains.

Women also tend to start saving for retirement two years later than men on average, reports the Transamerica Center for Retirement Studies, and they're less engaged in managing their portfolios.

Many advisers report a pervasive fear among female clients about becoming bag ladies.

"There's rarely a relationship I have (with women) where the term doesn't come up - and I'm not the one bringing it up," said Catherine Scrivano, a financial planner at CASCO Financial Group in Phoenix.

Her first suggestion to women: Acknowledge that retirement may pose money problems, and then take steps to address that fact.

Gale Northrop, branch manager of the Charles Schwab office in Peoria, also urges women to become more engaged. She suggests using any of several online retirement programs to assess where you are, then develop a plan and update your progress.

The process involves saving regularly, taking advantage of matching funds in retirement plans and picking stocks and other investments that stand a good chance of beating inflation over time.

"Women tend to be more conservative and not take advantage of growth," Northrop said.

Since women generally live longer than men, they should think about delaying retirement. And long-term-care insurance could be a smart option, especially since many women wind up divorced or widowed in later years.

Scrivano advises women to consider downsizing their homes in retirement if doing so would ease the financial burden.

Salisbury believes everyone should strive to become mortgage-free by their mid-50s, yet he said 36 percent of Americans enter retirement saddled with housing debt.

Scrivano also thinks it's important for women, especially mothers, to learn to put themselves first.

"We tend to want to take care of the kids longer than we should in terms of finances," she said. "But we need to prioritize dollars and put aside money for our own financial independence."

Group Challenges Solutions

Women Must plan on making money last longer than men but typically don't earn as much. Also report less confidence and familiarity with finances and investments. Must save more, focus on longer-term goals, gain better understanding of risk/return trade-offs and consider products such as long-term-care insurance.

Minorities Many are grappling with high rate of unemployment, low homeownership, reduced financial literacy — often with minimal retirement assets beyond Social Security. Address basic financial issues such as enhancing job skills, building up emergency cash reserves and boosting homeownership in addition to retirement-focused goals.

Young adults Take control over retirement because pensions and maybe Social Security won't be around. Resist getting discouraged despite coming of age in an era of dismal returns. Take advantage of approaches likely to bear fruit over time, such as regular contributions to 401(k) plans and tax-free Roth IRAs and embracing riskier growth investments.

Housing, jobs hurt

You can debate the causes - higher unemployment, lower financial literacy, fewer white-collar jobs or whatever - but Blacks and Hispanics trail Whites in retirement preparation. The recession hasn't helped.

For example, many members of minority groups have lost their homes through foreclosures or other means, erasing whatever equity they had built up and hurting their credit scores.

Despite the housing slump, home prices have tended to appreciate over time, and the government helps with the mortgage-interest deduction and other tax benefits. Also, fixed-rate mortgage payments stay flat over time, while rents typically creep higher, which can crimp retirees on a budget.

Whites have a homeownership rate nearly 30 percentage points higher than Hispanics or African-Americans.

Members of certain minority groups also are more likely to be out of a job, which means they're putting away less money for retirement. The latest jobless rates of 16.3 percent for African-Americans and 12 percent for Hispanics compare with 8.7 percent for Whites.

In a study of middle-class Blacks, Ariel Investments of Chicago has regularly reported that African-Americans save and invest less than Whites of similar incomes. This year, Black households said they saved a median of $189 a month, vs. $367 a month for Whites.

Ariel also found more Blacks than Whites have reduced contributions to workplace 401(k) plans while borrowing more from the programs. Middle- and upper-income Blacks have a median of $56,000 in 401(k) plans, compared with $106,000 for Whites.

Compounding the pressures, Blacks say they intend to retire earlier than Whites and have less money in growth investments such as stocks.

John W. Rogers Jr., Ariel's chairman and CEO, who is African-American, sees hope in Blacks' apparent willingness to try new tactics - another finding from the study.

"We have learned the painful lesson that real estate investing is not foolproof and are open to new ideas," Rogers said. "Stocks are cheap, and the stock market continues to have great long-term potential."

Hispanics, meanwhile, might be worse off than Blacks in planning for retirement, with the issue for some compounded by language difficulties.

"Recent trends indicate that Hispanics have actually become less prepared for retirement over the past few years," wrote the Hispanic Institute and Americans for Secure Retirement in a report.

Challenges range from lower education levels, earnings and savings to less in expected Social Security benefits and lower participation rates in retirement plans at work.

One area of opportunity is in improving financial literacy. With investment firms and others providing more bilingual educational materials, the language and perhaps cultural impediments should begin to dissolve.

Entitlement issues

It's too early to conclude that young adults are lagging in terms of retirement preparation, but they will face some unusual pressures. One involves uncertainty over Social Security.

"Since we don't know if Social Security will be available, we need something to fall back on," said Erica Anderson, 29, a Maricopa woman who invests in a 401(k) plan.

Even if Social Security survives, young adults will face reduced benefits, later retirement ages or higher taxes to pay for it.

Also, younger adults, unlike their parents and grandparents, are being shut out of traditional pensions. Guaranteed, company-managed plans are being phased out due to higher costs and legal liabilities compared with what employers face with 401(k)-style programs.

In addition, young adults appear less likely to have lifetime jobs. To the extent they are laid off, switch jobs, take sabbaticals or otherwise interrupt careers, it can disrupt their retirement planning.

This is especially harmful when people cash out of 401(k) plans rather than roll them over when leaving or switching jobs. That removes dollars from retirement accounts and accelerates the payment of taxes, with a tax penalty added.

But young adults do have some advantages.

Joseph Ortiz, an Edward Jones financial adviser in Ahwatukee Foothills, considers them to be quick learners, entrepreneurial and reasonably willing to embrace risks. He encourages them to use dollar-cost averaging - a strategy of making small, ongoing purchases through 401(k) plans or other means.

For young adults and others earning modest incomes, Ortiz cites the Retirement Savers Credit as an attractive option. It's a federal tax credit that can be used to finance contributions to workplace plans or IRAs. Young adults who save and invest regularly for decades can look forward to a sizable pot of cash.

For people who start investing in their 20s, Northrop suggests saving 10 to 15 percent of gross income. For those who start in their 30s, she considers 15 to 20 percent as better.

"The cost of delaying is huge," Salisbury said. "It's never too late to start, but there's no substitute for starting early."

Northrop was more blunt: "Save until it hurts, then save some more," she said.

Roth individual retirement accounts, which offer tax-free withdrawals, could prove especially valuable for younger investors with several decades to let their money grow.

Patience, discipline

There are no magic elixirs, but some strategies are especially suitable for people in groups that are behind the curve in retirement planning.

But mostly, success depends on saving regularly, investing prudently, assuming personal responsibility, learning more and utilizing tax and employer financial subsidies.

It's not fancy, but it can work for anyone, regardless of age group, sex or skin color.

8 workers. None plans to retire early.

Several Valley residents share their perspectives on retirement planning.

Krystal Broady, 26

Krystal Broady, an administrative assistant at Redburn Tire in Phoenix, is an enthusiastic participant in the company's 401(k) retirement plan. Although she admits retirement isn't much of a concern at the moment, Broady believes it's important to prepare.

She likes the salary-deferral feature of the program, in which her contributions are taken directly from each paycheck. The Goodyear resident also strives to save money in addition to what she contributes to the 401k plan, with a savings goal this year of $2,500.

Broady already has been in the plan several years. "I'm pretty proud of myself," she said.

Chris Gates, 25

Glendale resident Chris Gates isn't thinking much about retirement. But he is doing something about it by investing in the 401(k) plan offered by his company, M&P Transport of west Phoenix.

A shop mechanic, Gates is contributing about 11 percent of his pay into the program, which he thinks will probably emerge as the core part of his retirement plan.

Gates is investing money fairly aggressively in growth-oriented mutual funds tilted mainly to the stock market.

Patricia Estrada, 56

For a while, Patricia Estrada was part of the "sandwich generation," raising two children (now grown) and taking care of her mother.

Estrada, an administrative assistant, now is supporting only herself, and she feels she will be in good shape for retirement.

She isn't convinced of Social Security's long-term viability, but she also has access to workplace retirement plans, including an Arizona state pension.

Estrada said she's been working since age 15 and plans to stay employed for many years.

"I hope I never retire," she said. "Not having something to do - that's not me."

Anne Jackson, 52

Anne Jackson, a high-school records clerk who lives in central Phoenix, said she has an opportunity to take early retirement but won't. In fact, she'd like to try for a new job eventually, perhaps in customer service, and recently attended a wage-negotiation class hosted by YWCA Maricopa County and the Scottsdale chapter of AAUW.

Jackson will receive a state pension but doesn't think it will be enough to live on in retirement. She also established some investment accounts but has had to dip into them.

"I'm not ready to retire financially," said Jackson, who doesn't expect to retire until she's in her 70s.

Kathryn Robins, 59

An executive for a non-profit group, Kathryn Robins took three years off to travel and spend time with family before re-entering the workforce. She also migrated from another country, Canada. Both factors, she said, slowed her retirement planning.

"I feel I'm behind in accumulating Social Security and traditional benefits," she said.

Robins hopes to work until 71 to maximize her Social Security payouts. She recently bought a home in Phoenix and is contributing to a health-savings account. Eventually, she wants to save more for retirement.

"I have in my mind the idea I'd need about $1 million to retire comfortably," Robins said, estimating she's about a quarter of the way there.

Michael Salaz, 52

Goodyear resident Michael Salaz got a delayed start in saving for retirement. He has worked at Redburn Tire in Phoenix for 33 years but didn't participate in its 401(k) plan for about a dozen years.

"I wish I had put away more earlier," said Salaz who doesn't expect to retire at an early age.

Salaz manages a retread shop at the company, and he tries to lead by example.

"I tell my guys, 'If you're apprehensive about investing, just start out with a little money,' " he said. "When any new employees come to work for me directly, I encourage them to look into it."

Brenda Suell, 60

Brenda Suell of Goodyear had planned to retire this year, but she decided to delay that by perhaps two years, with finances a factor.

"I'd get bored and probably spend money I don't have," she said.

Still, Suell, an office manager, said she's not especially worried financially about retirement. She and her husband, James, an electrical engineer, own a home and live within their means. Their two grown children are financially independent. James has a pension at Salt River Project and participates in the utility's 401(k) plan.

"If I didn't have hubby, I might be concerned," Suell said.

Jesse Villa, 50

Jesse Villa isn't certain he'll be able to retire comfortably. The central Phoenix man expresses doubts about Social Security, and he lost a home in the housing meltdown.

Villa also got a late start but has embraced the 401(k) plan offered by the firm where he has worked the past five years.

"It's pretty much the only way I can save money," he said. "I like the fact that I can't touch it and that (contributions) come out automatically."

Villa, a truck driver, doesn't plan to retire anytime soon. "I'll keep working as long as I can drive and as long as I can pass the physical," he said.

But when he does retire, Villa said he might do so in a place where the cost of living is lower.

http://www.azcentral.com/business/artic ... z0zwH6TeXR

The reason people are not saving for retirement is because WAGES ARE SO DEPRESSED THERE IS NOT ANYTHING LEFT. I am tired of hearing all this chit about how Americans spend frivolously. I dont think this is true most of the time. Wages are so depressed and jobs are not stable. Who the hec can plan for retirement without the resources to do it effectively? If you have to depend on your credit card due to multiple layoffs, and if you dont really get paid enough when you are working to save much....then of course there will be no retirement fund.