Race, Gender Disparities Still Evident in Retirement Account Balances

Significant race and gender disparities persist in retirement account balances, even after adjusting for salary and tenure, according to research from the Collaborative for Equitable Retirement Savings.

The initiative, established in 2023, is a collaboration between the Aspen Institute Financial Security Program, Morningstar Retirement and the Defined Contribution Institutional Investment Association. According to the initiative’s first report, “Same Income, Same 401(k), Different Account Balance: The Critical Role of Retirement Plan Design in Addressing Racial and Gender Retirement Savings Gaps,” the discrepancies in retirement account balances can be linked to differences in contribution, loan and withdrawal behavior,

“Income and tenure differences do not fully explain the reasons that Black and Hispanic workers in our dataset save less than their white counterparts, after controlling for age, salary, tenure, and plan design variables, nor do they fully explain the gender differences that we see in the data,” the report states. “Simply put, the differences in account balances across races and genders do not appear to be solely a result of differences in economic circumstances. An easy way to understand these differences in savings is by considering participants’ average account balances as a ratio of salary.”

The initiative’s research, conducted in 2023, found that among Black men aged 55 to 59, the average ratio of account balance to salary was about one to one, while Black women had lower average ratios. By contrast, white men and women had balances approximately 1.81 and 1.80 times their salaries, respectively. Hispanic workers fell in between these figures, with men’s balances 1.33 times their salary and women’s 1.43 times.

Those disparities widened for workers closer to retirement, emphasizing the need for targeted interventions, the report noted. According to the collaborative’s analysts, the key reasons for the disparity are:

1. Discrepancies in contributions: After accounting for age, salary, tenure and plan design factors, Black and Hispanic females contributed a lower proportion of their salaries than their white counterparts, impacting their long-term retirement savings prospects;
2. Withdrawals before retirement: Black and Hispanic workers tended to make more withdrawals before retirement than white participants, hindering the overall growth of their retirement savings; and
3. Differences in loan usage: Black participants were more likely to have unpaid loans than white individuals, allowing them to save less in retirement accounts.

The report suggested that implementing cost-effective measures to encourage participants to refrain from early withdrawals could also significantly narrow the racial gap in retirement savings.

“Simulation results indicate that eliminating preretirement withdrawals would substantially mitigate race and gender disparities at retirement, particularly for early- and mid-career 401(k) participants,” the report stated.

Analysts noted that account balances used in the study do not include savings outside of workplace plans. However, workers’ tenure and income were adjusted to ensure comparisons were as equitable as possible.