July 28, 2011
New research finds an appalling 20 to one chasm in net worth between white and black Americans, and an 18 to one gap between whites and Hispanics. The Pew Research Center found that the net worth gap has widened during the Great Recession, mainly because the housing bust disproportionately cut into the wealth of African-Americans and Hispanics.
The housing crash hurt these households disproportionately because they tended not to have much in the way of other assets, especially when it came to retirement savings. So, the Pew report -- an analysis of the comprehensive U.S. Census Bureau Survey of Income and Program Participation for 2009 - points to a terribly important social problem we face today - and the growing retirement security gap confronting minority households.
This is worth keeping in mind as Washington's debt ceiling and deficit reduction circus continues - and as the politicians and policymakers continue their flirtation with dangerous cuts to programs that will be absolutely critical to minority households in the years ahead, namely Social Security, Medicare and Medicaid.
These programs are very important to all Americans, of course. But they will be nothing short of a lifeline for households approaching retirement with little or no retirement savings, through no particular fault of their own. Traditional defined-benefit pensions have all but disappeared in the private sector, and voluntary saving through Individual Retirement Accounts or 401(k) plans are tied to several important factors where minority populations are at a disadvantage:
Income. You can't save what you don't earn. While there's nothing new here, Pew reports the disparities in joblessness and income have continued during the Great Recession. Jobless rates at the end of 2009 stood at 12.6 percent for Hispanics, 15.6 percent for African-Americans and 8.0 percent for whites. Income losses also were greater for minority households.
Access. Minority workers are less likely to work for employers that offer a workplace retirement plan. Just 33 percent of Hispanic workers - and 49 percent of African-Americans - had access to a workplace plan in 2009, according to the Employee Benefit Research Institute. That compares with 53 percent of white workers.
Tax breaks. The tax breaks granted to 401(k) and IRA savers are available only to those who itemize and are greatest for most beneficial to high-income households. Taxpayers in the highest-earning quartile by income claim nearly 80 percent of the total benefits of entitlement programs for retirement accounts, and more than 40 percent goes to the top 6 percent of taxpayers alone, research shows.
The gap in retirement savings are cumulative, reflecting not just the current recession but years of inequality in income and tax policy. Pew's data shows that Hispanic households had 53 percent less saved than white households in taxable portfolios, 401(k) accounts and IRAs at the end of 2009, while African-American households had 62 percent less than whites. The disparities aren't much different if you exclude taxable accounts and consider only tax-advantaged retirement savings vehicles.
For many of these households, retirement security will rest entirely on Social Security, Medicare and Medicaid, the latter serving as a last resort source of nursing care.
More than 25 percent of elderly African Americans and Hispanics depend on Social Security for more than 90 percent of their family income, according to AARP, and it keeps 30 percent of these senior minority groups out of poverty. These households also are least able to afford the various out-of-pocket expenses required in Medicare, or to set aside savings for healthcare expenses outside Medicare.
So, consider what it would mean to slash Social Security and Medicare for these vulnerable retiree groups. Deficit hawks want to boost Social Security's retirement age and cut the program's annual cost-of-living adjustment - moves that will reduce monthly benefits 20 percent and 8 percent, respectively. And they want to increase the Medicare eligibility age from 65 to 67.