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Ethnic Elders Hit in Retirement

RedwoodAge.com, News Report, Tom Murphy Posted: Jun 19, 2009

Editor's Note: Retirement planning has gotten tougher for those who lost 30-40 percent of their nest eggs in the market crash. But in America, the numbers say that the impact on individuals most often comes down to whether or not you're white. Tom Murphy of RedwoodAge.com filed this report from the National Press Foundations recent retirement conference.

WASHINGTON, D.C. -- Yes, retirement planning has gotten much tougher for those who lost 30 or 40 percent of their nest eggs in the market crash. But they still have it much easier than another group: those who never had a nest egg to lose.

The greatest obstacle to a secure retirement isn't the return on your 401(k), the type of annuity you choose or whether you buy long-term care insurance. It's whether you're poor and, in America, the numbers say that most often comes down to whether you're white, brown or black.

While the net worth of white households jumped 9 percent to $170,400 in 2007 from $154,400 in 2004, the worth of an African-American household fell 24 percent to $17,000 from $22,400, according to Wilhelmina Leigh (shown in photo) senior research associate for the Joint Center for Political and Economic Studies.

Only 51 percent of African Americans have anything saved for retirement, including cash, stocks or bonds, she said. And 72 percent have saved less than $25,000, meaning they're among the 42 percent of Americans who will rely almost entirely on Social Security checks through old age.

The plight of low-income Americans was among the topics discussed in a three-day program on retirement planning that was produced by the National Press Foundation with a grant from Prudential Financial. Other topics included needed changes in retirement thinking, the long-term viability of the Social Security system, newly proposed savings tools for middle-class workers and the political climate that surrounds these issues.

Of all the problems, the specter of poverty loomed largest, particularly as 77 million boomers start drifting into their retirement years. The median Social Security check hovers just above the federal poverty line, which, in itself, is under attack for failing to include such major expenses as health care.

Leigh noted that, of those who worked at least six months of the year, 9.7 percent of African American workers and 10.5 percent of Hispanics are already under the federal poverty line - the group known as the working poor. That compares to 4.4 percent of whites.

"The major obstacle to saving is the lack of disposable income," said Leigh. "And when you've worked more than six months of the year and are still below the poverty line, you have little or no disposable income."


Preeti Mehta, director of special projects for the Doorways to Dreams Fund, said the challenge of stimulating savings by low-income families is difficult, even though they are aware of the need to have more cash to finance retirement.

She noted 80 percent of gambling revenues come from households that earn less than $50,000 a year. Studies have found 38 percent of those earning less than $25,000 a year think the best way to build their personal wealth is to play the lottery.

Accordingly, Mehta's group has experimented with programs that encourage low-income Americans to save by offering a chance to win $100,000 or one of several smaller, monthly prizes. To enter, a worker needs to deposit as little as $25 into a fund similar to a bank certificate of deposit (CD).

In just a matter of weeks, the program had generated $1.2 million in new deposits, mostly from people who were unable to save beforehand. While most didn't win any prizes, they saw their deposits grow in a secure account.

In another program, the group encouraged low-income Americans to invest their tax returns in an inflation-protected U.S. bond. One-third of those who participated liked the program so much that they repeated the exercise the following year.

That's a major step for low-income workers, who often resort to taking out refund anticipation loans from tax-preparation operations that charge exorbitant interest rates.

Doorways to Dreams also noted 72 percent of Americans played video games, so it worked with a software maker to create a video game that teaches how to manage credit. The game, called Celebrity Calamity, teaches the risks of being careless with credit cards.


Leigh noted widespread social problems that limit access to banks in poor neighborhoods for those who might want to save.

Regional and national banking chains rarely have branches in poor neighborhoods, meaning residents would have to travel a long way to visit a bank. Even community banks - the smaller institutions built specifically to serve local communities - rarely operate in inner cities. When they do, they often seem to have a "bunker mentality" that is off-putting to residents, according to Leigh.

Because they lack standard financial services, many poor people turn to check-cashing operations or pay-day loan businesses that charge many times what a bank might for the same services. Some residents even form their own financial circles, sometimes called sou-sous or sociedads, to pool resources and make loans to members of the group, but these generally don't pay interest to "depositors."

In addition, many poor people live in rural areas where there is no financial institution nearby. Some of the poorest states are where there are the highest congregations of rural poor, like Arizona, Arkansas, Georgia, Kentucky, Louisiana, Nevada, New Mexico and Texas, she said.


Teaching people how to save money, avoid credit traps and how to benefit from stocks and bonds is a goal for many of those both inside and outside of government. For example, community groups work with the Internal Revenue Service to help low-income workers collect earned income credits, a program through which the government pays workers whose wages fall below a certain level. Mehta's savings bond program works with the IRS that way.

The U.S. Treasury Department is supporting the creation of an automatic 401(k) for all companies employing more than 10 workers. The "default" investment through such a plan might be a saving bond designed to help with retirement, according to Mark Iwry, deputy assistant secretary of the Treasury.

He said the program is designed to help support financial literacy and encourage savings. "That's what this is really all about," Iwry said.

Rep. Cathy McMorris Rodgers, R-Washington, believes financial literacy programs should be mandatory in high schools, though she acknowledges those who need them most are dropouts.

"As a society, I think we need to do more for financial literacy," she said. "I think we're all aware that Americans are not good savers."

Rodgers said she'd favor a tax break for saving, but has "some concerns" about requiring employers to provide a 401(k) for workers as a way to help them plan for retirement.


Sen. Robert Casey, D-Pennsylvania, a member of the Senate Committee on Health, Education, Labor and Pensions as well as the Special Committee on Aging, wants to see more financial literacy programs for both old and young people. "We're not doing enough in financial literacy," he said. "We need to do more."

Casey believes one of the best ways to help address the problem of poor elders is to reduce costs associated with health care. Casey, who says he spends 3-5 hours a day in hearings on health care reform, says that would help to ensure the survival of Medicare.

To be sure, such steps would help; out-of-pocket medical costs make up about a third of the spending for the average senior citizen, and many elders are cutting back on needed medications due to the recession.

However, the broader problem of poverty -- particularly among the nation's ethnic elders and their families -- persists, and the number of seniors living in abject poverty is likely to grow sharply as 77 million boomers head into the final years of their lives.

Related Articles:

Report Challenges Negative Image of Immigrant Elders

Ethnic Elders Find it Harder to Make Ends Meet

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