By Anthony Webb

Essay Overview

Financial provision for retirement is often characterized as a three-legged stool, comprising Social Security, employer-sponsored retirement plans, and private savings. This essay reviews the literature on the racial retirement savings gap, shows how Black and Hispanic households are disadvantaged, and proposes interventions that would improve their financial preparedness for retirement. This essay argues that the three-legged stool is no longer a suitable metaphor for retirement saving because middle-class households of all races save little outside their retirement plans. In addition, households lack an effective means of converting retirement savings into a lifetime income. The literature suggests that households in general, and Black and Hispanic households in particular, would benefit from the following: financial products that enabled them to delay claiming Social Security, improvements in access to employer-sponsored retirement plans, wider adoption of auto-enrollment and defaults into life-cycle funds, introduction of employer-sponsored programs to encourage rainy-day saving, promotion of annuitization within retirement plans, and underwriting of annuities based on zip codes.