Tackling Retirement Inequality
A report by Boston Indicators, in collaboration with the Federal Reserve Bank of Boston and the Aspen Institute, reveals significant racial disparities in retirement plan coverage, assets, and adequacy in the U.S., with a focus on Massachusetts. The analysis emphasizes the need for policy reforms to increase retirement plan coverage and reduce racial wealth gaps.
Key Findings:
- Retirement Plan Wealth Distribution: Employment-based retirement plans are crucial for wealth accumulation, especially among Black families, where these assets constitute 41% of private wealth for households with heads aged 40 to 64. However, many families lack retirement plan coverage or have low-quality plans, exacerbating wealth inequality.
- Racial Disparities in Massachusetts: White workers are the most likely to participate in retirement plans, whereas Hispanic workers have the lowest participation rates. Public sector jobs, which often provide better retirement benefits, are more accessible to Black workers, helping to mitigate some wealth disparities. However, Black and Hispanic workers still hold substantially fewer 401(k) assets compared to their White and Asian counterparts.
- Importance of Defined Benefit (DB) Pensions: Retirees with DB pensions are more likely to have greater economic security. In Massachusetts, 89% of retirees with DB pensions have incomes above 200% of the federal poverty threshold, compared to 51% without a DB pension. This indicates the significant role DB pensions play in ensuring financial stability in retirement.
- Policy Recommendations: The report advocates for policies to expand retirement plan coverage and boost plan balances. Suggestions include implementing automatic IRAs, enhancing portability of retirement accounts, and creating targeted communications for employees of color. Additionally, expanding access to high-quality education and stable career pathways is vital for building retirement wealth.
Improving retirement security through enhanced coverage and better plan options is essential for addressing racial wealth disparities. Effective policy interventions can help economically disadvantaged populations build greater wealth and achieve financial security in retirement.
