Changes in Racial Gaps in Retirement Security over Time

Abstract

We explore changes over time in how financially prepared Americans are for retirement, with a focus on the relative positions of Black and White families. Our data source, the Panel Study of Income Dynamics, oversamples lower-income families, allowing for more reliable estimates for lower-income Black families compared with other household surveys. The PSID also has longitudinal information, which permits us to examine the impact of families’ past experiences on their retirement security. We find not only a large White-Black disparity in non-pension wealth, but also notable declines between 2001 and 2019, with median non-pension wealth relative to income dropping by 15 percent and 60 percent for White and Black families in their 50s, respectively. Together with marked reductions in the prevalence of defined benefit pensions, these declines imply that estimated income replacement rates for families near retirement were, on average, about 9 percentage points lower for families with White heads and about 8 percentage points lower for families with Black heads in 2019 than in 2005.

Keywords: Racial Disparities, Retirement Security, Aging, Wealth Inequality

JEL Classification: J14, J26, J32, J71