Obstacles to Saving for Retirement

1. Obstacles to Saving for Retirement Presentation by Wilhelmina A. Leigh Joint Center for Political and Economic Studies “Retirement Issues in the 21st Century” National Press Foundation Washington, DC 21 June 2010

2. Organization Of Presentation Why Does Saving for Retirement Matter? Macro Obstacles Micro Obstacles How to Address Obstacles Joint Center for Political and Economic Studies

3. Why Does Saving for Retirement Matter? • All three legs of the metaphorical retirement income stool are a bit unstable. The legs are: • Social Security • Employer-sponsored pensions • Private savings and investment • Most workers today and in the future will need to rely on private savings and investment more than on the other two legs of the stool during retirement. Joint Center for Political and Economic Studies

4. Social Security Leg of Retirement Income Stool • Its “pay-as-you-go” financing system will be challenged in the future by: • Baby Boom retirements • Increased life expectancy • Decreasing birth rates Joint Center for Political and Economic Studies

5. Social Security Leg of Retirement Income Stool (cont’d) * Includes Asians and Pacific Islanders, American Indians and Alaska Natives, and a subset of the total number of beneficiaries of Hispanic origin. Social Security benefits constitute a floor for financial needs during retirement. Joint Center for Political and Economic Studies

6. Availability of and Participation in Employer-Sponsored Retirement Plans, by Race/Ethnicity, 2007 (Percent) 2007 EBRI Minority Retirement Confidence Survey Joint Center for Political and Economic Studies

7. Amount Saved for Retirement by Race/Ethnicity, 2007 Joint Center for Political and Economic Studies * Percents do not sum to 100 due to rounding. 2007 EBRI Minority Retirement Confidence Survey

8. Macro Obstacle: Access to Retirement Saving Vehicles • The most readily accessible vehicles for retirement saving are provided through employers (e.g., 401(k), 403(b) plans). • Not available if unemployed • Not universally available, even among employed persons Joint Center for Political and Economic Studies

9. Macro Obstacle: Labor Market Segmentation Low-income labor force is disproportionately African American (21.4%) and Latino (28.4%). Workers in the lowest earnings quartile are less likely to work for employers who offer retirement plans (38%) than are workers in the highest earnings quartile (73%). Thus, African American and Hispanic workers are less likely than white workers to have access to retirement plans through their employers. Joint Center for Political and Economic Studies

10. Macro Obstacle: Legacy of “Separate but Equal” • The racially segregated communities in which African Americans and Hispanics often live frequently have inferior education systems and also may not have financial institutions. • Inferior education systems are less likely to offer financial education. • Absence of financial institutions is likely to limit familiarity and comfort with mainstream financial products and services . Joint Center for Political and Economic Studies

11. Micro Obstacles to Saving for Retirement Intentions Expectations Behaviors Joint Center for Political and Economic Studies

12. Micro Obstacles: Intentions 2009 JC Poll • Many say they want to save every month but don’t have enough money to do so: Joint Center for Political and Economic Studies

13. Micro Obstacles: Expectations • African Americans and Hispanics differ from workers of All Races in their expectations about major sources of retirement income: • … more likely to expect Social Security or an employer-sponsored pension to be a major source • … less likely to expect personal savings and investment to be a major source Joint Center for Political and Economic Studies

14. Social Security as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, 2007, and 2009 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data) 2009 Joint Center Poll Joint Center for Political and Economic Studies

15. Employer-Sponsored Pension as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, 2007, and 2009 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data) 2009 Joint Center Poll Joint Center for Political and Economic Studies

16. Personal Savings and Investment as an Expected Major Source of Retirement Income, by Race/Ethnicity, 1998, 2005, 2007, and 2009 (Percent) Leigh and Huff. 2007 (1998 and 2005 data) Helman, VanDerhei, and Copeland. 2007 (2007 data) 2009 Joint Center Poll Joint Center for Political and Economic Studies

17. Micro Obstacles: Behavior 2007 EBRI Minority Retirement Confidence Survey 2009 Ariel/Hewitt Study All workers (60%) are more likely than either African American workers (45%) or Hispanic workers (34%) to “currently save for retirement.” Among employees in 57 of the Fortune 500 companies, African Americans (66%) and Hispanics (65%) were less likely than Asians (76%) and whites (77%) to participate in the 401(k) plans available to them. Joint Center for Political and Economic Studies

18. Micro Obstacles: Behavior 2009 JC Poll * Includes savings accounts, CDs, and Money Market Accounts. Joint Center for Political and Economic Studies

19. How to Address Obstacles Amend policies governing employer-sponsored retirement plans Enact policies to expand use of retirement saving vehicles not sponsored by employers Enhance knowledge about ways to save in general and to save for retirement, in particular Joint Center for Political and Economic Studies

20. Contact Information Wilhelmina A. Leigh Senior Research Associate Joint Center for Political and Economic Studies 202-789-3529 (phone) 202-789-6369 (FAX) wleigh@jointcenter.org Joint Center for Political and Economic Studies