America’s fastest-growing demographic group might also be the least ready for retirement.
New research by the National Council of La Raza finds that in California – home to more than a third of the nation’s Latino population – just 29 percent of Latinos have access to an employer-sponsored retirement plan and only 21 percent of those who have access participate. Taken together, this means only 6 percent of the state’s Latino workers have employer-sponsored retirement savings at all.
But it doesn’t mean Latinos lack the desire to save. In a 2014 survey by Prudential, the majority of Latinos ranked saving for retirement as a top financial priority. It also found, however, that too many hurdles get in the way of saving.
“The barriers to retirement savings are structural and systemic, not cultural,” said La Raza Vice President Eric Rodriguez, speaking at an event co-sponsored by the Aspen Institute’s Initiative on Financial Security, AARP and CFED.
Latinos are less likely than others to have access to employer-sponsored savings plans, Rodriguez said, because they are often part of the contingent workforce, work for small businesses or work in industries such as agriculture and construction that offer few retirement options. Of the 7.4 million Californians who lack access to an employer-sponsored plan, more than half – 3.8 million – are Latino.
Moreover, Latinos’ earnings – which directly impact their ability to save – are significantly lower than the earnings of other groups. According to the La Raza report, Latinos earn $20,000 per person on average – or about half that of whites.
As a result, average savings balances among Latinos who save are smaller than they are for non-Hispanic whites and for Blacks. Only 14 percent of Latinos in California have retirement savings equal to one year’s worth of income, says La Raza, compared to 37.8 percent for whites. And on average, it would take a Latino household just three months to exhaust all available retirement savings. Foreign-born Latinos may face the greatest challenges of all. According to La Raza, average retirement savings among foreign-born Latinos do not exceed $10,000 for any age group.
But among more affluent Latinos, savings rates were comparable with that of whites. In fact, La Raza found that among workers earning between $75,000 and $100,000 a year, Hispanic women were the most likely to participate in an employer-sponsored retirement plan.
“Many Latinos will save more if the opportunities to save are improved,” Rodriguez said. “What they need is less about things like ‘coaching’ and ‘promotion’ but rather better tools and products that meet their unique financial circumstances.”
One promising avenue for improving Latinos’ prospects for retirement security in California is the California Secure Choice Retirement Savings Program, an innovative effort passed by the state legislature in 2012 and set for implementation next year. This legislation requires that all companies with more than five workers to provide for automatic payroll deductions into a state-sponsored retirement plan.
Among the benefits cited by La Raza are automatic enrollment for workers as well as a default contribution level of 3 percent. And because the plan is administered by the state, not employers, small businesses are not responsible for plan administration. Workers also avoid the hassle of “rolling over” account balances if they switch jobs.
According to the California State Treasurer’s office, nearly half of all California workers are currently on track to retire with incomes below about $22,000 a year – roughly twice the federal poverty level. If it succeeds, California’s bold new experiment with retirement savings could benefit not just Latinos but all of the state’s residents – and set a model for the nation as well.