Americans Aren’t Saving Enough Money to Retire
by Michael Pope
Even with all the new technologies and ease of the Internet many Americans, and especially African-Americans, aren’t investing. Not only is this alarmingly bad for a large percentage of the population, but also for the country as a whole. Because of uncertainty or fear of loss many people aren’t saving up enough for retirement, and unfortunately may run out of money when they are no longer working.
A recent survey from Ariel Mutual Funds and Charles Schwab demonstrated that African-Americans save far less than whites and are no more likely to invest today than they were a decade ago. Their recent findings, marking the 10th annual black investor survey, were released at the first-ever Ariel-Schwab Black Investor Summit in New York City.
In conducting the survey, 500 African-Americans and white individuals who earned more than $50,000 annually were polled. The survey found that an African American’s average savings was less than half of a white person’s nest-egg at $48,000 versus $100,000. Furthermore, on a monthly basis African-American’s were found to save a mere $182 versus whites who saved $261 on average.
When the two companies first conducted the survey in 1998 57% of African-Americans responded that they owned stocks or mutual funds. This is compared to 81% of white participants. A decade later the number of African-American investors has stayed relatively constant at 57%, despite peaking at 74% in 2002, although the dip could be attributed to the recession. Ariel Mutual Funds’ President, Mellody Hobson, considers the findings to be, “troubling because it suggest that barriers to investing are just as formidable as they were a decade ago. Our industry and community must address this challenge aggressively.” Even beyond barriers to investing, the survey found that among the African-American community many more people are likely to be relying on a pension plan or social security rather than a contribution plan, like a 401(k) or IRA. While a pension plan or social security does provide a modest income, that money is most likely not enough to last a person through retirement. Especially considering that individuals are living longer, yet the amount put into these plans has remained relatively constant.
Although African-Americans do seem to be falling short in particular, this is unfortunately a symptom of American society as a whole. Charles Schwab stated: “The truth is that many Americans are not saving enough to ensure a comfortable retirement. The problem is broad-based; but the 10th anniversary of this research and today’s summit serve as important reminders that the need to better prepare for their financial futures is even more pressing among this underserved segment of our population.”
In a recent NerdWallet survey, we found and that often reluctance to invest comes down to a few major factors. Out of the 844 Americans surveyed 81.4% didn’t know the correct account to open in order to invest in stocks, and over a quarter of those not currently investing online didn’t invest because of either uncertainty on how to get started (13.6%) or risk aversion (12.8%).
Simply put, fear and lack of education is what is keeping Americans from investing in their financial security after retirement. It is important that Americans overcome this hurdle and, with advancements in technology, starting a retirement plan can be very easy. In order to accomplish this, we’ve created a comprehensive guide on how to get started investing. Here are some basic points that everyone should know:
- Minimize your costs: Make sure you don’t lose your retirement savings by paying hundreds of dollars annually in account fees and trading commissions.
- Calculate a minimum investment: And stick to it. Some accounts require a minimum investment to be opened, but beyond that know how much either monthly or annually that you need to save. Many online institutions have calculators that can help you find this number.
Investment and saving are extremely important for every American. By doing a little research and committing to a retirement plan, investing no longer need to be scary, but can instead be extremely simple and valuable. Relying on a pension or social security may not be the best idea because it isn’t calibrated for the longer lives that many Americans are now living. Just remember, it’s never too late to start saving for the future.
To learn more about retirement planning:
- Saving for College: Roth IRA or 529 Plan
- 401(k) vs. IRA: Choosing a Retirement Account
- 401(k) Rollovers: How to roll over a 401(k) to a No Fee IRA
Mellody Hobson photo by Stuart Isset