The growing use of employer-sponsored retirement plans is prompting more African Americans to invest in stocks, according to the 2005 Ariel/Schwab Black Investors Survey. In addition, 401(k) plans are helping black investors build wealth for the future and a solid nest egg for retirement.
The findings are significant because they come at a time when many Americans, particularly baby boomers, question whether such programs as Social Security and Medicare will still be around and help provide them with sufficient benefits once they retire.
Experts say employer-sponsored retirement plans are one tool that African Americans can use to become less dependent on societal resources once they stop working. By investing in the stock market, participation in these plans helps narrow the income gap between blacks and their white counterparts and offers the opportunity to take steps now to be better prepared for retirement.
According to the eighth annual Ariel/Schwab survey, released Tuesday, African Americans who are saving mainly for retirement are twice as likely to be stock investors as African Americans who, for example, are only saving for a down payment for a house or to pay for education.
“What the employer-sponsored plan does is it emphasizes and creates an easy vehicle for African Americans to get engaged in the activity of investing for their retirement,” says Carla Foster, a vice president at Charles Schwab.
Yet, the number of blacks who own stocks or mutual funds continues to lag behind higher income whites. Sixty-five percent of African American households earning more than $50,000 annually had money invested in the stock market compared to a high of 74% in 2002. The comparable numbers for whites have remained statistically flat, hovering around 80%.
But the survey finds that among those who participate in 401(k) and other employer-sponsored retirement plans, African Americans and whites have parallel investment strategies.
For instance: Similar percentages of blacks and whites seek help from advisers (36% of blacks vs. 39 % of whites) or manage their own retirement portfolios (39% vs. 41%.) Moreover, 25% of blacks and 21% of whites initially choose their retirement investments, but rarely make changes to their portfolio.
“The stock market has outperformed all other investment since 1926,” says Mellody Hobson, president of Ariel Capital Management (No. 1 on the BE ASSET MANAGERS list with $21.4 million in assets under management). “It’s a crucial way to way to create wealth and grow money long term.”
It also is becoming more and more the responsibility of individuals to proactively take charge of their financial lives and prepare themselves for retirement, Foster says. “We all know that the writing is on the wall that Social Security is not going to be enough to provide for the retirement of this baby boomer generation.”
Bernadette Dunklin agrees. As an administrative coordinator at Children’s Hospital in Cincinnati, Dunklin has been participating in her company’s 401(k) plan for 20 years. Dunklin, 47, says the plan is worth about $34,000 today.
“When I retire, I want to make sure that I can take care of myself and I’m not struggling,” Dunklin says. “I invest in my 401(k) because I want to have [an extra] cushion.”
Unlike Dunklin, the survey reveals that 45% of blacks versus 60% of whites consider retirement their most important goal for saving. Furthermore, blacks that are investing regularly in retirement accounts contribute an average of $65 less monthly than whites ($210 vs. $275).
Foster says her worry is that for blacks who have worked very hard to put themselves square into the middle class during their working levels will find themselves retiring in the “underclass” if some of the barriers are not overcome. “That’s my biggest fear,” she says. “As a community, we need to be prepared for retirement,” adding that more companies are moving away from pensions and toward these kind of defined contribution plans.
Hobson also says trouble at places such as United Airlines and other companies has convinced people that pension plans may not be as rock solid as they once thought. United Airlines says last year that it was stopping payments to an employee pension fund as it tried to resolve its bankruptcy issues.
“Your 401(k) is your own money, it’s portable and you can take it with you,” Hobson says. “That’s giving people more peace of mind.”
By Jeffrey McKinney
Source: Black Enterprise
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