Latinos Falling Short on Retirement Preparation

In NLLSA on March 16, 2010 by NLLSA Treasurer


The 2010 Census is expected to show that Latinos now make up approximately 15% of the overall population, up from 12.5% of the 2000 population.  This rapid growth has received much attention and will undoubtedly have many effects on the nation in the coming years.  One area where Latinos will have a large impact will be in the workplace, where Latinos today make up 14% of the U.S. workforce and are expected to account for one-third of the group by the year 2050.  Latinos, however, do not appear to be adequately preparing for retirement and may have difficulty maintaining the same standard of living throughout the golden years.

According to a recent study conducted by the Hispanic Institute (HI), a nonprofit organization, and Americans for Secure Retirement (ASR), the lack of financial planning for the future is the result of multiple factors.  The study reveals that, compared to their non-Latino counterparts, Latinos as a group have less earning power, lower levels of personal savings, less access to employer-sponsored retirement plans, and are less literate in financial planning.  Collectively, these factors are contributing to a problem that must be addressed. 


One reason for Latinos not adequately planning for retirement is the lower level of personal savings, due primarily to relatively-low income levels.  According to the U.S. Census Bureau, the 2008 average personal income of native-born Latinos was $44,297 and $33,703 for foreign-born Latinos.  This compares to $57,877, $42,667, and $63,311 for white, African-American, and Asian counterparts, respectively.  The lower income brackets, therefore, leaves less disposable income for saving.  It also means a greater likelihood that individuals will not have bank accounts, which makes it more difficult to initiate a proper retirement plan.  In addition to low income, the study noted that the most common groups of unbanked individuals include those with low education levels, those living in rural communities, and recent immigrants—all categories under which many Latinos fall under.    


Moreover, the large number of Latinos in service jobs or employed by small businesses makes employer-sponsored retirement plans, such as pensions and 401(k) programs, more difficult to attain.  The study found that just 25.6% of Latinos are covered by employer-sponsored retirement plans, compared to 42.5% of white and 40% of African-American workers. 

“Since 401(k) plans are now the primary retirement savings tool and the savings disparities are so significant, it’s apparent that minorities are likely to retire with less financial security,” said Mellody Hobson, President of Ariel Investments.  “[W]ithout a significant effort to improve savings and investing behaviour, African-American and Hispanic workers are in danger of retiring into poverty.”

While 73% of workers in goods-producing businesses (e.g. manufacturing, mining) have access to such benefits, only 56% of workers in service-producing businesses are covered.  With 45% of Latinos working in service industries, many Latinos must face the already-burdensome obstacle of preparing for retirement without the assistance of their employers.      


The study also found that Latinos as a group have lower levels of education and lack the financial literacy necessary to implement a sound retirement plan.   Almost one quarter of all Latinos over the age of 25 have less than a high school education, compared to less than 7.41% of non-Latinos in the U.S.  In addition, just 9% of Latinos have a bachelor’s degree, compared to 17% of the total U.S. population.

At least some of the difficulty in financial planning for the future is attributable to the language barrier.  A separate study conducted by the Pew Hispanic Centre shows that just 23% of adult first-generation Latinos can carry a proficient conversation in English, while 52% of foreign-born Latinos speak only Spanish at home.  Therefore, even if employer-based retirement plans are available, Latinos who do not speak English face the challenge of understanding the different retirement options without comprehensive information being available in Spanish.


Compared to other demographic groups in the U.S., the Latino population is considerably younger.  The median age of Hispanics is approximately 27.3 years of age, compared to the overall U.S. population average of 36.4 years.  In addition, the HI and ASR study notes that Latinos have a longer life expectancy than their non-Latino counterparts.  This means that retirement savings will need to be larger for Latinos, who will have to rely on retirement savings for a longer period of time.  The need for sound retirement planning, therefore, becomes all the more important. 


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