How Income Inequality Is Hurting Retirement Savings

Estimated reading time: 3 minutes

Savings Shortfall

Saving enough for retirement is a big undertaking for most people. But some Americans are in a more disadvantaged situation than others as income inequality makes savings goals harder to reach for some demographics.

Mind the Gap

Gender and race play a key difference when it comes to Americans’ 401(k) balances, according to a report by the Collaborative for Equitable Retirement Savings (CFERS), a research initiative co-founded by Morningstar (MORN).

White men nearing retirement (ages 55-59) have stashed away an average of $403,000, compared with $328,000 for White women. But Black men and women in the same age group have less than half of those savings at $145,000 and $130,000, respectively, per an Axios analysis of the report.

The wage gap across these demographics can be blamed for much of this disparity. It’s that simple: If you make less money, you can save less money. Black women between 55 and 59 participating in retirement plans earn an average of $85,500 per year, per the report, compared to nearly $108,000 for White women.

However, the report also found Black workers tend to contribute a smaller percentage of their salaries to retirement accounts. For example, black women save 8% on average, while White and Asian women save 11% and 17%, respectively. Black Americans were also the demographic most likely to borrow against 401(k) balances, per the report.

Closing the Gap

The U.S. government wants to close this significant gap. The 2022 SECURE 2.0 Act includes the “Saver’s Match” initiative, which is set to start in 2027. For Americans making less than $71,000 per year, the program will match 50% of retirement contributions (up to $1,000 per person, or $2,000 for married couples filing jointly).

CFERS projects that this initiative could increase account balances for Black women by up to 21.5%, if contributions are maxed out.

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