Retirement savings are crucial for individuals who want to live a comfortable life during their golden years. However, not all Americans have equal opportunities to save for retirement, and there is a significant racial retirement savings gap that affects many communities of color. In this blog, we will explore the causes and consequences of the racial retirement savings gap and discuss a possible solution with state IRA programs.

The racial retirement savings gap is the difference in retirement savings between white Americans and people of color. According to a report by AARP,  among private sector employees ages ranging from 18 to 64, more than 53% of African Americans and about 64% of Latinos do not have access to a workplace retirement plan, compared with about 42% percent of cuacasian workers and 45% for Asian Americans.

The racial retirement savings gap has significant consequences for individuals and society as a whole. For individuals, the gap means that people of color are more likely to experience financial insecurity during retirement, which can lead to poverty, homelessness, and a host of other problems. For society, the gap means that we are not tapping into the full potential of our workforce, as people of color may be forced to continue working past retirement age or may not be able to retire at all. This can have a negative impact on the economy, as older workers may be less productive and less able to contribute to society in other ways. Due to that fact, these undervalued workers may not contribute to your business with the maximum potential, causing inefficiencies and less work being done individually.

There are several steps that can be taken to reduce the gap and ensure that all Americans have the opportunity to save for retirement. A new implementation of state-facilitated individual retirement savings programs attempts to close the racial savings gap. Rather than competing with large corporate retirement plans, the state’s new initiative focuses on the underserved industry of small businesses and the private sector, including bars, restaurants, and grocery stores. These state programs require businesses to either offer a retirement plan or automatically enroll their employees into the state’s program. Additionally, legislators have pushed for more progress in the form of the Secure Act 2.0. A proposal that would establish a federal matching contribution for lower-income workers. This match would consist of a maximum of 50% of up to $2000 in contributions, a maximum of $1000 per person. Essentially, for low-income workers who put away $2000, a 50-cent match for each dollar would contribute heavily to their savings.  

Malaysia has a mandatory retirement savings plan for all Malaysians working in the private sector (small business). The retirement age in the private sector is 60. The HSBC 2013 survey shows that just over 3/4 of respondents had saved enough for retirement, and of the ¼ that were not prepared, ½ of those people did not realize that they were underfunded until after they had stopped working. Additionally, about 40% of Malaysia is expected to be uncovered by any form of social protection, and many Malaysian citizens under the formal retirement system are expected to see insufficient funds for retirement. 

The percentage of retirement income that comes from pensions is much lower in Malaysia than in many other countries, with public and private pensions combined to comprise a mere 30% of all retirement income

It is clear around the world, more initiatives need to be brought to the surface in order to solve the retirement gap around the world.

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