William Huston, AIF®, AIFA®

Best Retirement Plans for African Americans

William Huston, AIF®, AIFA®

William Huston, AIF®, AIFA®

Best Retirement Plans for African Americans

Retirement is a season of life many long for. A time to relax, travel and enjoy life without the constraints of work. However, the key to achieving a comfortable retirement is planning, and that’s where retirement plans come in.

An elderly man and a young woman staring hard into a laptop screen

Retirement planning is essential for every American, and it is even more important for African Americans due to the wealth disparities and other unique challenges they face. According to recent data from the Federal Reserve, Black families have a median net worth that is approximately one-tenth that of White families, making retirement planning even more crucial.

This blog post takes a quick sweep through some of the best retirement plans for African Americans to help them achieve their retirement goals.

Key Takeaways
  • The average retirement income for African Americans are lower and their retirement accounts less funded in comparison to their White counterparts
  • Retirement planning is especially important for African Americans due to these inequalities and the unique financial challenges they face
  • Roth and traditional 401(k)s and IRAs are important set-ups for retirement
  • It is important to work with a financial or retirement advisor in setting up retirement plans and accounts

The contents of this article are for educational purposes only. They are not intended to serve as a source of professional financial advice. Find experts on real estate, financial planning and wealth management here. More on disclaimer here.

What Is the Racial Retirement Wealth Gap?

The wider racial wealth gap extends to retirement. The racial retirement wealth gap refers to the disparity in retirement savings and income between different racial and ethnic groups in the United States. Research shows that Black and Hispanic families have significantly less retirement savings and income compared to White families.

A couple trying to resolve their differences while sitting at a table

According to a 2019 report by the Economic Policy Institute, the median White family had $188,200 in retirement savings, while the median Black family had just $25,000 and the median Hispanic family had $36,000. Similarly, the report found that the median White household had a retirement income of $61,000, while the median Black household had just $37,000 and the median Hispanic household had $40,000.

The racial wealth gap is largely the result of societal barriers and structural inequalities that have limited wealth-building opportunities for Black and Hispanic families. These barriers include discrimination in employment, housing, and education, as well as historical factors such as slavery, segregation, and redlining that have had lasting impacts on wealth accumulation.

A woman in blue blazer sitting at a table and writing

The implications of the racial wealth gap are significant, as they can lead to increased financial insecurity, poverty and dependence on government assistance programs for marginalized communities. Addressing this gap requires comprehensive policy solutions that address systemic inequalities and promote wealth-building opportunities for all Americans, regardless of race or ethnicity.

This may include expanding access to retirement savings plans, increasing funding for affordable housing programs, and strengthening anti-discrimination laws in the workplace. Additionally, financial education and literacy programs can also play a role in empowering individuals and families to build retirement savings and achieve financial security.

What is the Average African American Retirement Income?

The average African American retirement income is lower than that of White Americans. According to a report by the Social Security Administration, in 2019, the average retirement income for African American beneficiaries was $14,640, while the average for White beneficiaries was $18,484.

A Black woman at work for early retirement

Additionally, a significant percentage of African Americans are more likely to work in lower-paying jobs that do not offer retirement benefits or access to retirement savings plans. This can make it more difficult to save for retirement and lead to lower retirement income.

Best Retirement Plans for African Americans

Here are some of the best retirement savings accounts for African Americans.

Defined Contribution Plan

There are two common types of workplace retirement plans including defined benefit plans and defined contribution plans. Defined benefit plans were predominant in the past but are rare nowadays. It functions as a sort of pension in which companies would guarantee workers a fixed benefit in retirement.

Today, the most common type of workplace retirement plan is a defined contribution plan, which includes 401(k)s and 403(b)s. Employers set up these plans to allow employees to contribute to an individual account within the company plan, usually via payroll deduction. If you see "company match" mentioned in your benefits paperwork, that means you can get free money: the company contributes to your account based on your personal contribution level (such as a dollar-for-dollar match or a 50-cents-on-the-dollar match, up to a certain percentage).

Traditional 401(k) and IRA Plans

A traditional 401(k) plan is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax income towards their retirement savings. Employers may also match a portion of their employee's contributions, making it a popular choice for many workers.

The money in the account grows tax-deferred, meaning you only pay taxes on withdrawals when you retire. There are annual contribution limits for these plans, and they also require minimum distributions after the age of 72 (in the retirement age range for many Americans).

Similarly, a traditional IRA plan allows individuals to contribute pre-tax income up to a certain limit. Like the 401(k), the money in the account grows tax-deferred, and taxes are paid only on withdrawals during retirement. The main difference is that an IRA is not employer-sponsored, so individuals must open an account themselves.

Roth 401(k) and IRA Plans

Roth 401(k) and IRA plans are similar to their traditional counterparts, but with a few key differences. Instead of contributing pre-tax income, contributions to a Roth plan are made with after-tax income.

The money in the account grows tax-free, and there are no required minimum distributions after the age of 72. Additionally, withdrawals during retirement are also tax-free, making it an attractive option for those who believe they'll be in a higher tax bracket in retirement than they currently are.

Employer-Sponsored Retirement Plans

Employer-sponsored retirement plans include 401(k) and 403(b) plans, and they can be a great way to save for retirement. These plans typically have higher contribution limits than individual retirement plans, and many employers offer matching contributions up to a certain percentage. Additionally, these plans are easy to set up, and contributions are automatically deducted from your paycheck, making it easier to save consistently.

Self-Directed Retirement Plans

Self-directed retirement plans are designed for those who want more control over their investments. Self-directed IRA plans allow individuals to invest in alternative assets, such as real estate, precious metals, and private equity, while a self-employed 401(k) is designed for small business owners who want to invest in similar alternative assets.

Social Security

Social Security can also play a significant role in retirement planning for African Americans, especially those who may not have access to other retirement plans. Social Security benefits are based on a worker's earnings history and are adjusted for inflation, making it a reliable source of income in retirement.

However, it's important to note that Social Security alone may not be enough to provide a comfortable retirement, so it's essential to save through other retirement plans as well.

A Final Word: Get Started Early!

Retirement planning is essential for all Americans, and it's especially important for African Americans due to the wealth disparities and other unique challenges they face. By utilizing the best retirement plans available, such as traditional and Roth 401(k) plans, employer-sponsored retirement plans, self-directed retirement plans, and Social Security, African Americans can take control of their financial future and enjoy a comfortable retirement.

It's important to start planning early and seek guidance from experts including black financial advisors

An excited woman with her plans on a white paper board behind her

A Special Note to African American and Hispanic Communities

Since lower income and higher spending are major inhibitors to wealth building among Minority communities, beyond maximizing tax cuts and social security benefits, Blacks and Hispanics should endeavor to set up retirement plans that focus on building diversified investment portfolios.

Also, in order to grow your retirement assets and achieve retirement security, it is essential for Black workers to work with a financial advisor or a retirement advisor who will guide their consumer finances into safe retirement havens. Working with a retirement advisor can provide numerous benefits in building a retirement plan that fits your specific needs and goals, including maximizing social security benefits.

If you're feeling overwhelmed or unsure about how to approach retirement planning, consider reaching out to a retirement planning advisor to help you get started. They can work with you to assess your financial situation, develop a personalized retirement plan, and provide ongoing support and guidance along the way. With the right planning and guidance, you can feel confident and prepared for a secure and fulfilling retirement.

Don't wait any longer, talk to a retirement planning advisor at Bay Street Capital Holdings today! Retirement is not the end of the road, it is the beginning of a new journey where every day is a holiday and the possibilities are endless.

Bay Street Capital Holdings

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Bay Street Capital Holdings, located in Palo Alto, CA, is an independent financial planning, wealth management, and investment advisory firm founded by William Huston. With its commitment to risk management, diversity and social responsibility, Bay Street Capital Holdings is a standout among financial planning and investment advisory firms.

What sets Bay Street apart is its focus on managing total risk and volatility, as opposed to solely maximizing returns like many other advisors. The firm's primary goal is to preserve and increase total assets and income.

William has over 13 years of experience supporting the largest retirement plan in the United States, the Thrift Savings Plan, which boasts assets worth $650B. His expertise has earned him recognition as one of the Top 100 Financial Advisors for 2022 by Investopedia. Bay Street is the only Black-owned firm among the twenty recognized firms in California.

Bay Street was established with a mission to support diverse and emerging fund managers and entrepreneurs, advocating for their unique needs. In 2021, Bay Street Capital Holdings was a finalist in the Asset Manager for Corporate Social Responsibility category, among more than 900 firms throughout the United States. As of now, the firm manages $480 million in assets.









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