January 24, 2019
Hispanic Retirement Outlook Gets Worse
One thing really stood out in a recent study: the deterioration in Hispanics’ retirement prospects since the 2008-2009 recession.
Workers’ success at saving for retirement is becoming increasingly important to their financial security in old age. This puts Hispanic households at a clear disadvantage: they earn half as much as white households, which makes it that much more challenging to build retirement wealth by buying a house or saving more in their 401(k)s – two-thirds of Hispanic workers don’t even participate in an employer 401(k).
White Americans aren’t exactly in great shape either. Today, 48 percent of them are at risk of experiencing a drop in their standard of living after they retire – this is 6 percentage points higher than before the recession, according to a new study by the Center for Retirement Research. Black Americans are worse off than whites, though their situation hasn’t changed much over the past decade.
But 61 percent of Hispanic workers are at risk – a 10-point jump since the recession – the study found. A big reason is that Hispanic homeowners were hit especially hard by plunging house prices during the mortgage crisis in states like Florida, Nevada, Arizona, and California, where they are heavily concentrated. Their home equity values dropped 41 percent, a result of buying “houses in the wrong place at the wrong time,” the researchers said.
The loss of home equity has a big impact on retirees by reducing the amount they can extract from their properties by purchasing less expensive housing or taking out a reverse mortgage. (The researchers assume that when workers retire, they will use reverse mortgages.)
It’s important to note here that the study was based on Federal Reserve survey data for 2016, and the economy, the housing market, and the stock market have all improved since then.
Black Americans didn’t escape the recession either. Their unemployment rate spiked to 17 percent, and the median earnings of the lowest-income blacks sank 39 percent. Oddly, these economic jolts partly explain why they saw only a 2-point increase in their retirement risk, to 54 percent, since the recession.
Low-income workers will have more modest requirements for their retirement income in the future, and Social Security acts as a buffer. The program’s progressive benefit formula replaces a higher percentage of low-income workers’ earnings.
The study’s strongest conclusion concerned Hispanic workers, who “face a much greater chance of being unable to maintain even their lower” living standards after they retire.
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