Wise investments: The financial realities of America’s Black boomers

3rd June 2011   ·   0 Comments

By Nayita Wilson
The Louisiana Weekly

Is it a retirement boom or bust for Blacks? As baby boomers continue to make a gradual and highly visible exit from the work-force, data shows that pre-retirement factors such as income and planning are determinants as to how well off they will remain financially in the years to come.

For Blacks who save less and make up the greater portion of individuals working low paying or government jobs, post-retirement workforce reentry may become the norm and driver of economic policies for the aging. The realities may also become a history lesson in financial planning for future generations.

According to the AARP commissioned report, 55+ African Ameri­can Workers: A Status Report, Impli­cations and Recom­menda­tions, the 2008 work force participation rates for men 50 and older was 55.9 for Blacks, 64.9 percent for whites and 67.5 percent for Hispanics. For women in the same age category, work force participation rates were 53.5 percent for Blacks, 53.6 percent for Whites and 49.2 percent for Hispanics. The figures are expected to increase in light of the Great Recession and financial needs.

According to the report, “The difficulties that many African Americans face in the labor market begin when they start working and continue until they retire. In fact, the disadvantages are just as serious for workers age 50 and older as for their younger counterparts. Eligibility for Social Security retirement benefits does not begin until age 62, so most households headed by adults 61 and younger must rely on what they earn at the workplace to make ends meet.”

Further, Blacks tend to earn less. According to 55+ African American workers, the median annual income of adults age 50 to 61 was $44,00 for Blacks, $72,300 for whites and $50,000 for Hispanics, with factors such as low marriage rates accounting for the short fall in the wages for Black earners.

In terms of long-term retirement planning, Blacks are less likely to invest in either a traditional defined benefit pension plan that guarantees a set benefit amount based upon earnings and years of service or a defined contribution plan such as a 401k, which can be invested.

The study evaluated investment practices of 1,076 Blacks, 8,239 whites, 634 Hispanics and 668 adults of other races who worked full time. Researchers found that 35.1 percent of Blacks, 35.2 percent of whites, 22 percent of Hispanics and 28.5 percent of Other were offered defined benefit pension plans in 2009. Of those groups, 33.9 percent of Blacks, 34.3 percent of whites, 19.9 percent of Hispanics and 27.2 percent of Other participated.

As it relates to those participating in defined contribution retirement plans, 47.3 percent of the Blacks surveyed, 53.5 percent of whites, 36.6 percent Hispanics and 47.0 percent of Other were offered this option. Of that group, 32.8 percent of Blacks, 43.7 percent of whites, 25.8 percent of Hispanics and 39.1 percent of Other participated.

Researchers Richard W. Johnson, Owen Haaga and Margaret Simms of the Urban Institute in Washington, D.C. wrote the report. According to Johnson, boomers are a “heterogeneous” group with various economic and social profiles. Still, they face significant retirement challenges such as the vulnerability of Social Security in the wake of the Great Recession and the fact that reduced wage growth will reduce future retirement income by five percent or $2,500 annually.

“Because Social Security doesn’t allow for a comfortable retirement on its own, people really need to supplement it with their own savings, but that requires a certain level of financial education,” Johnson said, adding that individuals with lower income earnings will inherently have lower retirement benefits due to the inability to invest more.

The greater challenge, he says, is prevalent among boomers in the middle income range whose retirement might become a problem if they haven’t saved enough money.

In addition to earnings, overall financial health sheds light on how well boomers will fare in long-term financial stability. Data released in Older Americans 2010: Key Indicators of Well Being (Older Americans 2010) evaluated 37 key indicators that are relevant to the livelihood of the U.S. population age 65 and older. The indicators were explored in five areas, including economics.

According to the report, there’s a gaping disparity between the net worth of households led by Blacks and whites age 65 and older. For instance, between 1984 and 2007, the median net worth of whites in that age group increased by 112 percent from $131,800 to $280,000; whereas, the median net worth for Blacks increased by 55 percent from $29,7000 to $46,000.

While Blacks, in some cases, are earning more money, they are not executing strategies that will help build wealth such as saving, eliminating debt, increasing income streams, creating a financial plan and building an estate for the next generation, according to Horace Sinclair, a personal financial coach who services families in Louisiana and Texas.

“By and far, we are lagging behind as a people because we are not putting enough money aside,” Sinclair said.

The reality becomes most apparent at death when some Black families scramble to find funds to cover funeral costs.

“In other populations, buying (life) insurance is a way to build wealth for the next generation. In the event that something happens, insurance protects that goal and provides heirs with money to fulfill the goal of the benefactor,” Sinclair said. Such goals can include paying off a mortgage, paying for college or creating a stream of income for beneficiaries.

In the Black community: “They sell us burial polices. They offer enough policies to bury the person, and that’s it.”

As solutions, Sinclair recommends solutions reading business articles, attending seminars, finding a financial mentor, changing belief systems and establishing a plan that “will attract a lot of income, assets and wealth,” as ways to help Blacks plan for retirement.

Boomer and retiree Gilda Austin of Las Vegans, NV, launched her retirement savings plan the day she began her education career in Nevada’s Clark County School District by taking advantage of the pension plan made available to her.

“As an educator, you don’t make a lot of money, especially when you’re starting out,” said Austin who retired from the district as an administrator in 2008. She returned the day after her retirement to earn more money, and retired a second time in 2010.

“I was vested in the state, so my pension is nice,” said Austin who retired at over 80 percent of her income and expects her retirement income to surpass her former salary in a few years because Nevada laws guarantee cost of living raises.

She said most of her boomer cohorts are well-off in their retirement phase. Speaking from personal experience, she encourages others to take advantage of employee incentives, and to remain on “good” jobs as long as possible.

“If you are relying on social security, invest and find opportunities to make your money grow,” Austin said. “You have to set out something — even if it’s just $10 a month. You have to save something.”

In other scenarios, government funded workforce development programs are assisting thousands of low-income seniors.

The National Caucus & Center on Black Aged, Inc. (NCBA), headquartered in Washington, D.C., has advocated health, housing and employment issues for Black seniors since 1970. The organization’s Senior Community Service Employ­ment Program (SCSEP), which is funded throughout the U.S. Department of Labor serves as a workplace training program for low-income seniors ages 55 years and older who meet eligibility requirements.

Approximately 2,206 seniors are enrolled in the program, which offers seniors employment training opportunities through placement at non-profit host sites in Arkansas, the District of Columbia, Florida, Illi­nois, Michigan, Mississippi, North Carolina, Ohio and Penn­sylvania. The annual average earnings for stipend participants vary by state and range from $5,126 to $16,409.

The program has garnered much success at employee placement and retention for a “very large number of poor and ‘most in need’ seniors, according to SCSEP’s National Director Debra Carter.

“Due to the state of the economy and now the budget cuts, which have affected many social programs for the poor, there is a definite need for more programs such as ours. As you know, we are in the baby boomer era and most of our senior populations have found it necessary to return to the workforce in order to thrive,” Carter said.

However, overarching budgeting issues threaten SCSEP’s viability. A recent budget cut of 25.2 percent is forcing the organization to limit its service capacity and terminate 8 full time staff members who provide services that are critical to operations, according to Carter.

“In our Southern states…and North Carolina, we are spread out in many counties, and without staff to properly manage these counties and to provide case management services for these participants, the service will certainly be affected,” Carter said.

As the financial needs of Black boomers shed light on their financial planning practices as well as wealth and workforce realities, experts on all ends on the spectrum recognize the need for more financial literacy in the Black Community and action.

Johnson said future policy initiatives will focus on having employees offer default options that automatically enroll individuals into retirement plans. “We shouldn’t just let people make their own decisions,” he said. “It’s important that workers have clear guidance about how much they should save for investments and where they should invest.”

Sinclair said, “There has to be a massive movement in order to change this. The government is not going to be able to do it because they have their hands tied with other priorities.” He adds, “It’s not hopeless. There are people who are fighting and advocating for our people to make it. If you are searching for something, you will find it. If you prepare yourself for change, God is already preparing someone to facilitate what you are preparing for.”

This article was written as part of the MetLife Foundation. Journalists in Aging Fellows Program organized by The Gerontological Society of America and New America Media, and originally published in the May 30, 2011 print edition of The Louisiana Weekly newspaper.