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Difficult retirement looms for ethnic workers, grandparents

Paul Kleyman

A disturbing new analysis from the Economic Policy Institute (EPI) pulls together “a picture of increasingly inadequate savings and retirement income for successive cohorts and growing disparities by income, race, ethnicity, education and marital status.” It’s one of several recent studies revealing a difficult financial future for tomorrow’s ethnic retirees and today’s grandparents.

EPI’s report, Retirement Inequality Chartbook: How the 401(k) Revolution Created a Few Big Winners and Many Losers, warns of growing ranks of elders having to struggle economically due to the shrinking number of pensions to supplement Social Security and the meager returns — for those who have pensions — from the newer pension funds.

The shift in recent years has been from long-standard employer-based pensions that provide retirees with a well-defined benefit to 401(k)s, which require workers to pay into their own investment accounts and to do so with few clues regarding which stock-market funds to chose.

Although many are paid a matching contribution from their employer and 401(k)s offer workers the advantage of being able to take the pensions from job to job, these plans also let employers off the hook with smaller contributions and expose workers to the ups and downs of stock and bond markets.

According to the EPI’s study, the overall effect on racial and ethnic groups is that “white households have more than six times as much saved in retirement accounts as Hispanic and black households.”

The report points out that as many African American workers as whites used to have employer-based retirement plans, but blacks have “lagged in recent years.” Latino workers “have fallen even further behind,” according the study.

In addition, writes the EPI, “Unmarried people, especially women, tend to be less prepared for retirement than their married counterparts.”

The study concludes, “The existence of a retirement system that does not work for most workers underscores the importance of preserving and strengthening Social Security, defending [traditional] defined-benefit pensions for workers who have them and seeking solutions for those who do not.”

Retirement Savings Erode at ‘Alarming Rate’

The EPI chartbook piggybacks on findings from the widely cited 2012 report, 401(k) Plans In Living Color II: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups.

This study, by the market research firms Ariel Investments and Aon Hewitt, determined that although the tough economy “led all workers to dip into their retirement savings … minorities have been the hardest hit.”

Examining 2010 data from 60 top corporation 401(k) plans, Ariel and Aon Hewitt showed that “compared to their Asian and white counterparts, African American and Hispanic employees are eroding their retirement savings at an alarming rate.”

The study found, for instance, that in the wake of rising unemployment in 2010, “African American employees took hardship withdrawals more than any other ethnic group.”

The study found that the two-thirds of African Americans and almost six-in-10 Hispanics who left their employer in 2010 cashed out their 401(k) balances, compared to four-in-10 white employees and just one-third of Asian workers.

Hard Times for Grandparents

This kind of pension insecurity will place an increasing financial burden on many groups of vulnerable seniors. For instance, according to a recent report, The High Cost of Caring: Grandparents Raising Grandchildren, in California alone, 300,000 seniors are taking on primary parenting duties for their children’s children.

The study adds that in California, “more than 20,000 care for their grandkids without any extended family assistance at home.”

The California study stresses that older adults raising grandchildren alone “may be among the most vulnerable residents in California, due to the state’s high cost of living and low levels of public assistance.”

The report, from UCLA’s Center for Health Policy Research and the Insight Center for Community Economic Development, shows that “nearly half of custodial grandparents who are 65 and over in California do not have enough income to cover the most basic needs of the grandchildren placed in their care.”

The report goes on, “Yet public programs that might provide benefits that could help grandparents cope, such as the state foster-care program, are often difficult to access or off-limits altogether for family caregivers.”

In California, as in other states, many older adults are ineligible for public programs like Medicaid (called Medi-Cal in California), housing subsidies and food benefits because they have incomes that are — often just slightly — above the official federal poverty level.

The study recommends “raising the eligibility criteria for certain public programs to 200 percent of the federal poverty level, extending state foster-care benefits to kinship caregivers and limiting the frequency of cumbersome and bureaucratic benefit renewals (since most older adults live on fixed incomes and thus do not experience income fluctuations that require regular documenting).”

According to a new report from Pew Research, “7.7 million children in the U.S. — one in 10 —were living with a grandparent, and approximately 3 million of these children were also being cared for primarily by that grandparent.” The numbers spiked upward when the recession started and have leveled as the economy has recovered, but they continue to rise as the U.S. population ages.

Among ethnic groups, states the Pew analysis, “black children are the most likely to be cared for primarily by a grandparent.” That’s one-in-12 African American kids, double the number of children raised by grandparents in Latino families, almost triple the level in white families and quadruple the rate in Asian families.

Senior editor Paul Kleyman, who has covered issues in aging for four decades, directs New America Media’s Ethnic Elders Newsbeat.