The retirement savings race gap is wide and growing

In terms of their retirement savings, Americans are a long way from true equality. A new government study shows that savings gaps across racial lines have remained stubborn — and in some cases have grown.

The Government Accountability Office (GAO), a watchdog agency that provides research to Congress, has submitted its report on older workers — defined as those aged 51 to 64 — and its results are troubling. From 2007 to 2019, white households' median retirement savings were double that of all other races.

They were also more likely to have retirement savings at all. In 2019, 63% of white Americans had a retirement account balance, while the rate for nonwhite households was only 41%. And among Black Americans, the share of households with retirement savings actually declined — from 50% in 2007 to 35% in 2016.

Underlying that gap was another form of inequality: White households typically earned more money.

"One potential reason for this is that white households had significantly higher median income than households of all other races each year over this period," the report said.

The GAO noted that in 2019, the median income for white Americans was about $90,700 — almost twice as much the median for Black households, which was about $46,100. In addition, the unemployment rate for Black Americans, 6.1%, was almost twice that of white Americans, at 3.3%.

Retirement accounts, which Americans usually build up by saving a cut of their paychecks, naturally fell into the same uneven pattern.

The GAO is not the only organization to reach this conclusion. The Federal Reserve has found that the typical white family has about eight times as much wealth as a Black family. The median white household has $188,200 in retirement savings — compared to $36,100 for Hispanics and just $24,100 for Black Americans.

Many financial advisers have seen this gap among their own clients, but some say the situation is more complex than these numbers let on. 

"We are accustomed to the ways systemic racism and bias affect wealth accumulation, but we rarely dissect the psychology and relationships with money and resources among communities," said Andre Jean-Pierre, founder of the RIA Aces Advisors in New York City.

Read more: Retirement's race problem: How employers can bridge the gap

Jean-Pierre, who is Black, considers it his mission to provide financial advice to underserved minorities. But he believes studies like GAO's leave out important aspects of the Black American experience, one of which he calls "obligation."

"Black professionals typically have a higher likelihood of supporting family and friends who are in less fortunate situations," Jean-Pierre said. "No one becomes successful on their own, and it's a challenge to help individuals who helped you."

Another contributor to the problem, several advisers said, is a gap in financial literacy. To Lawrence Pon, a certified financial planner and tax expert in Redwood City, California, the biggest divider between clients is not race or income, but knowledge.

"Sadly, I do see inequality in retirement savings," Pon said. "However, it has a lot to do with the educational level of the participants."

In Pon's experience, less-educated clients tend to distrust the stock market and prefer real estate — which can be difficult to use as an investment. One key to shrinking the retirement gap, he said, could be to provide more financial education to minority investors.

"For employers, they need to have frequent seminars in multiple languages to explain the retirement plans," Pon said. "Unfortunately, too many of the presentations are hard to understand or they are poorly presented. … Financial wellness should be an employee benefit!"

Another thing that could help, some advisers said, would be more wealth managers of color. Although progress has been made in recent years, only 1.9% of advisors with the CFP designation are Black, and 2.9% are Hispanic.

Read more: How a financial advisor's gender and race affect client trust

"Certainly, wider issues exist which stem from the marginalization of minority groups, causing inequities in opportunities for these folks," said Crystal Cox, a senior vice president at Wealthspire Advisors in Madison, Wisconsin. "But … we can perhaps look at the current makeup of the financial services industry, which is majority cis, straight, white males. 

"Not to say that these men are ill-equipped to provide sound financial advice to low-income and racially diverse people," she went on, "but the issue may come down to the comfort these marginalized groups feel talking with someone who they believe does not understand their background or situation."

Jean-Pierre echoed this idea.

"Black finances come with a certain degree of nuance that I believe you have to be from the culture and experience to understand," he said.