Millions of Americans aren't saving enough for retirement, but African American and Latino investors, on average, are further behind than whites and are more likely to be a greater burden to their families because they save too little and invest too conservatively, new research has found.
"It's extraordinarily disconcerting," said Mellody Hobson, president of Ariel Investments, which along with benefits firm Hewitt Associates conducted a study of 401(k) participants.
"No one is doing a good job preparing for retirement, and [minorities] are doing worse," Hobson said. She said people do not want to be a burden to their families but are unknowingly setting themselves up for that.
Although some people assume that insufficient savings are a result of low incomes, Hobson said her research indicates the problems come from behaviors such as waiting too long to start investing, borrowing too much from 401(k) plans and avoiding stocks.
When researchers compared people of similar income levels, they found that black and Latino investors accumulated less than whites in 401(k) plans.
Among people earning less than $30,000 a year, African Americans had on average $3,900 in their 401(k) accounts. Whites at the same income level had $8,000.
For people earning more than $120,000, whites had built up average savings of $223,000, while blacks had $150,000 and Latino investors had $154,000.
Hobson said that each group makes mistakes that hold them back from accumulating the retirement money they will need. African Americans often assume that they need to be earning about $100,000 before they can start investing, and whites tend to wait to invest until they are about 35.
Both approaches undermine people's futures because saving small amounts early in life is more effective than investing larger amounts later.