Because of minority savings behavior and many other systemic hurdles, a study found that people of color are less prepared financially for retirement.
With most companies no longer providing pensions, the burden of saving for retirement is increasingly being put on the individual. Compounding that with the fact that there is an ever-growing wealth gap between minorities and non-minorities, saving for retirement is no easy feat for people of color.
This article aims to dissect why minority savings behavior is such a challenge and what you can do to reverse this trend.
Understand why minority savings behavior is worse when compared to non-minorities
Learn important steps to take to reverse this trend and improve your retirement success
See how a trusted advisor can help you overcome this compounding challenge
Why Minorities Are Less Prepared
There are several reasons why minorities are less prepared for retirement when compared to non-minorities.
For many communities of color, it is not uncommon for one person to bear the responsibility of supporting their family from a financial perspective. This could mean being the breadwinner during their earning years and the source of income once they retire. From that perspective, there is an expectation that the breadwinner will support multiple generations with their retirement savings funds.
For most minorities, there is simply a lack of generational knowledge and financial education compared to non-minorities. Because of this, younger minorities do not have conversations with their parents about personal finance, investing, retirement savings, etc.
This lack of education, knowledge, and mentorship compounds the problem of building wealth and saving for retirement for minorities.
Systemic & Institutional Roadblocks
Education is undoubtedly a big piece of this problem, but systemic & institutional issues have historically caused minorities to be less prepared for retirement. Because more minorities are less educated, they tend to work in lower-paying jobs. Furthermore, lower-paying jobs lead to less long-term savings for retirement and lower earnings history (providing less Social Security benefit). Finally, most lower-paying jobs do not have great benefits or retirement plans to help minorities improve their retirement goals.
Steps To Improve Minority Savings Behavior & Achieve Retirement Success
Given the heavy hand minorities are dealt, there are still many actions that you can take to reverse this trend. Below are several steps that you can take to improve your savings behavior & achieve success in retirement:
Take inventory of your current financial situation from a cash management standpoint. It would help if you had a firm handle on how much money is coming in and how much money is going out. Many people do not like the term "budgeting," so I prefer "cash flow management." Either way, the better you understand where your money is going, the more aware you will be of your earnings, savings, and spending.
Create a financial plan with specific savings and retirement goals. It is tough to think far into the future, especially regarding retirement. However, the more time you take today to get specific on your retirement goals, the more clarity you will have.
Plan for the unexpected. When it comes to retirement planning, there are many unknowns. How much will my savings grow? How much money will I get from Social Security? What will my healthcare costs be like? These are just a few questions that most pre-retirees think about. You don't have to know the answers with certainty, but by thinking about them early on, you will set yourself up for success.
Discover what levers you can pull (or change). The most significant variables when it comes to retirement success are (1) retirement age, (2) savings rate (before retirement), and (3) spending rate (during retirement). You can pull other levers, but these will make the most impact on your retirement success. By understanding these key levers, you can confidently make "trade-off" decisions based on what you want for retirement.
How Can an Advisor Help Improve Minority Savings Behavior?
Most minorities may think working with a financial advisor is only for the ultra-wealthy. This thinking and the fact that the financial services industry has not done a great job building trust may also be a reason why minority savings behavior is not improving.
However, working with a financial advisor truly has many benefits that can help minorities improve their savings behavior and ultimately reach retirement success in a smart and thoughtful way.
One of the most important values that working with a financial advisor can bring to any client is in the education and financial knowledge area. Because this is a generational gap for minorities, a reputable financial advisor would be critical in educating and sharing insight into what is possible regarding saving, investing, tax planning, risk management, estate planning, business planning, etc.
Another significant value that an advisor can provide is building a holistic financial plan for you. By genuinely getting to know you, your family, and your financial situation, an advisor can help create a roadmap toward achieving your retirement goals.
While there are many additional value-adds, one last meaningful way an advisor can help is with the "coaching" arena. Whether it is cultural roadblocks or family dynamics, your financial advisor will be objective and help keep you on the right path to achieving your goals. With this behavioral coach and accountability partner, you can reverse the trend and truly improve minority savings behavior.
Our firm is here to help and will do everything that we can to improve the minority savings & wealth gap. We specialize in working with Haitian American business owners and other minority members of the South Florida community. To get in touch with us, click here and schedule an introductory call.