Why Some Blacks Not Ready for Retirement

Issue: Blacks tend to save for their children's education before retirement. Many black families will trade away a comfortable retirement to send their children to college. In addition, a leisurely retirement is viewed as a luxury. To this point, when asked in the Ariel-Schwab Black Investor Survey how they plan to spend their retirement years, only 41 percent of blacks said to spend "more time on leisure activities," compared to 56 percent of whites.

Mellody's Tip: For African-Americans, the path to success has always been expressed in one word: education. Parents stress it, teachers drill it into the heads of black students, and now, the Black Investor Survey findings suggest that many black families will trade away a comfortable retirement to send their kids to college.

Your children can borrow money for education, but you cannot borrow money for retirement. I like to use the analogy of an oxygen mask on an airplane to illustrate this point. You are always told to put your oxygen mask on first before helping your child. The same could be said for retirement. You need to prepare for your retirement first, then worry about education for your children. Keep in mind, there are no scholarships for retirement.

Issue: Blacks tend to be over-insured. In fact, African Americans have 29 percent of their assets tied up in insurance products, compared to 13 percent for whites.

Mellody's Tip: Insurance is for insuring and not for investing. Essentially, life insurance helps to ensure that your debts will be covered and your dependents will have the financial resources to run the household without you. My general rule of thumb is to carry life insurance coverage of four to 10 times your annual gross income. For example, if you make $25,000 per year, you should carry a minimum of $100,000 in life insurance coverage.

Family Matters

Issue: Black women tend to control the family finances more so than their white counterparts. With the average woman outliving the average man, more and more women are finding themselves facing retirement unprepared. To make matters worse, women earn 74 cents for every dollar men earn — wages which translate into less invested for retirement.

Mellody's Tip: All women need to take a pro-active approach with regard to their financial situation. The best advice is to ask questions and stay informed. In addition, you need to prepare for your own retirement. As such, if your employer offers a retirement savings vehicle, such as a 401(k) plan, do your best to defer the maximum contribution. For stay-at-moms, it is critical to have your spouse open a spousal IRA on your behalf in which you can invest up to $3,000 per year.

Issue: Blacks are not able to invest as much because they are more likely to be caring for aging parents or supporting adult children.

Mellody's Tip: For those families who have adult children returning home, there are a few ways to ensure that the arrangement is mutually agreeable. Consider charging rent and making your child pay for their portion of the utilities and groceries. Also agree upon the length of stay and rules regarding household chores and guests.

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