Why Some Blacks Not Ready for Retirement

Although African-Americans have made great advancements since the civil rights movement, there are still significant disparities between blacks and whites when it comes to building wealth and preparing for retirement.

Blacks have less wealth than their white counterparts and in particular, less money saved for retirement, meaning that a burgeoning black middle class may not have the means to retire comfortably. That shortfall may impact everyone, from black citizens themselves, to others who must pay higher taxes to support them.

Lagging Wages

According to 2002 census figures, black men still earn roughly 25 percent less than their white counterparts who have the same level of education.

Specifically, the median income for a black man with a high school diploma was $27,224 in 2002, compared to $35,738 for whites. For those with higher educations, the discrepancy is even wider. The median income for a black man with a master's degree was 27 percent less than his white counterpart: $50,763 for blacks versus $69,655 for whites.

Black women also earn less than their white counterparts, although the differences are smaller. Black women with high school degrees earn 12 percent less than whites, while black women with master's degrees earn 6 percent less.

Investing Habits

The wage discrepancy harms African-Americans in more ways than one, as income levels are one of the most important factors motivating blacks to invest (age is the biggest determinant for whites).

Over the past six years, Ariel Mutual Funds and Charles Schwab & Co. have partnered on the Black Investor Survey to better understand the investing patterns in the African-American Community as well as to draw attention to the need to build wealth within this community. Key findings of the survey reveal habits and perceptions which hinder wealth building. Issue: More blacks consider real estate the best investment overall. Additionally, a huge percentage (71 percent blacks and 61 percent whites) chose home improvements over stocks as the better investment.

Mellody's Tip: Since 1926, the stock market has been the best investment, outperforming all other investments, including real estate and bonds, and African-Americans have been missing out on this wealth-building machine. Investing does not always require a lot of money, it only requires discipline and patience. In fact, many mutual funds allow you to invest as little as $50 a month if you invest in an automatic investment plan.

Issue: More blacks consider themselves to be conservative investors.

Mellody's Tip: Unfortunately, playing it too safe can hurt your portfolio, as many investment goals, such as retirement, are long-term. Investors who put all of their money in low-risk, low-yielding securities like bonds and CDs do so to their detriment. Investors should remember that the stock market has averaged about 10 percent per year over the long-term. Those with longer time horizons need to learn how to balance risk and return. Money invested in a bank barely outpaces inflation, and investors could regret excessive conservatism come retirement day.

Setting Financial Priorities

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