Are You Saving for Retirement? Racial/Ethnic Differentials in Contributory Retirement Savings Plans.

Abstract

How individuals and families accumulate retirement resources during working years is a key aspect of aging with implications for later life. This study examines how much, and by what mechanisms, savings in retirement plans vary by race/ethnicity. Using representative survey data and linked W-2 tax records, we estimate the probability of participation in employer-sponsored defined contribution (DC) retirement plans with probit regression, and contribution levels with ordinary least squares (OLS) models. We use Heckman models to adjust for potential sample selection. Black and Hispanic workers have lower participation and contributions in employer-sponsored DC retirement plans than do white workers, while Asian Americans have higher levels. The bulk of racial/ethnic differences is attributed to socioeconomic position, especially education and labor market circumstances like earnings. Differentials are also associated with family circumstances, namely for black workers. After accounting for education, labor market, and family covariates, social-psychological factors appear to explain only small portions of differences, especially for black and Hispanic. This study clarifies how racial/ethnic disparities in socioeconomic circumstances generate advantages and disadvantages in retirement wealth accumulation. Lower DC retirement plan participation and contributions among minorities in work life represent an underappreciated earlier-life channel through which racial inequalities in income and wealth in later life are generated.