Giovanna González was first exposed to retirement when her grandfather was forced to stop working in his 70s. He suffered a stroke.
“My grandpa didn’t have retirement savings,” she says. “My mom and her four siblings pooled money to help with expenses. This has been going on for 20 years.”
González remembers questioning family members about why her grandfather worked until such a late age.
“They said he still has to make money.”
Life expectancy for Hispanic Americans is 78.8 years old, the longest of any group. But with lower retirement savings, poverty and uninsured rates than the general population, aging comfortably may be next to impossible for some.
“It is a beautiful thing that we can live longer and spend more time with loved ones, create more memories and make an impact on this world, but that does come at a cost,” González says. “The longer you live, the more money you’ll need.”
The Longevity Risk
Experts hypothesize that Hispanic Americans’ longevity is connected to more robust social support networks in their community and better health habits.
Hispanics had lower death rates for nine of the 15 leading causes of death in the United States in 2013, according to the Centers for Disease Control and Prevention.
González’s grandfather is 90 years old. After a brief stay in the U.S., he is now living in Mexico. Aside from back problems, he is in reasonably good health. But living longer can be a double-edged sword.
It’s terrific if you’re healthy, but if you’re sick, it can be physically and financially draining. In 2013, Hispanic Americans died at higher rates from diabetes, chronic liver disease and cirrhosis. Hispanic Americans are three times more likely to lack health insurance. Households with someone of Hispanic origin are also more likely to hold medical debt.
By living longer, the threat of outlasting retirement savings can present a more significant challenge for Hispanic Americans.
Diminished Retirement Income
Outside of homeownership, Americans hold most of their wealth in their retirement accounts.
Yet, Hispanic Americans with retirement plans have less than half the median savings balance as whites — $31,000 compared to $80,000, according to research from the TIAA Institute. Hispanic Americans are also less likely to be covered by workplace retirement plans than whites.
“Overrepresentation in low-wage industries is a real thing for us,” says Diana Urichich, Director of the Spanish Advisory Team at TIAA (No. 8 on DiversityInc’s 2022 Top 50 companies for Diversity list). “Often what’s happening is they don’t have access to retirement plans. That problem has only increased in the pandemic.”
Life insurance plans with a cash value component can be used as a source of income in retirement. However, Hispanic life insurance ownership is lower than other races or ethnicities.
Over the past ten years, Hispanics were more than twice as likely to experience poverty than their white counterparts. Hispanics also have lower lifetime earnings than white workers, with Latinas having the lowest annual workplace earnings of any ethnic group.
Smaller earnings lead to reduced monthly benefits earned under Social Security, the sole income source for 40% of Hispanics. The earlier you claim Social Security, the smaller your earnings will be. On average, Hispanic retirees receive benefits earlier than their white counterparts.
“There are competing issues — income and poverty,” says Diana Caba, Assistant Vice President for Policy and Engagement at the Hispanic Federation. “Latinos are amongst the lowest paid. That sets back any potential to save, prepare for retirement and live longer.”
Hispanic adults are disproportionately represented in the gig economy — non-traditional, short-term, seasonal workers without access to retirement plans. Categorizing gig workers as employees, expanding state-administered auto-IRA programs and corporate investment in jobs with higher wages and better benefits are among the solutions that have been cited to improve access.
Financial Literacy, Diversity and Language Barriers
Hispanics typically have lower levels of financial literacy than whites. Comprehending risk and investing are among the weakest areas of financial knowledge.
“For a lot of our community, their retirement plan is I’ll just work till I die, but that’s not reality,” says González. “What if you get hurt and you’re not able to work? We need to be proactive in our financial education and start learning this stuff. It’s not taught to us at home. It’s not taught to us at school.”
Increasing diversity in the financial advising field can play a role in boosting retirement plan participation rates. Research shows that when younger people seek financial advice, they gravitate to advisors they can relate to. Yet in 2021, Hispanic-certified financial planners made up only 2.7% of CFP professionals.
“Money is very personal to people. After they build a relationship, they’ll open up and tell you everything in their life, but they have to feel that comfort level,” says Urichich. “You want consultants with a better understanding of the culture, we plan for retirement as a family. We don’t talk about it as individuals.”
It’s those financial planners that can demystify retirement for Hispanic Americans by explaining terms like compound interest and the importance of starting to invest early. Bilingual associates and Spanish language access services that target low-income working-class Latinos can play a role in breaking down barriers.
“There are 26 million people in the country that are considered limited English proficient, which means that their English isn’t very good, they primarily speak another language. A disproportionate amount of those people are Latinos,” says Santiago Sueiro, Senior Policy Analyst at UnidosUS.
In the Hispanic community, family members often play a critical role in supporting the elderly. Caba notes that some Hispanics find themselves in the sandwich generation, where they are supporting their children and parents.
“My parent’s generation was about making sure you pay your bills, pay your rent and save money for a rainy day,” she says. “But when it came to retirement goals, the pressure was on the children, especially the children of immigrants. The expectation is that you’re going to do better than your parents and that you’re going to be the ones to take care of them.”
What does this mean for the people that are left supporting aging relatives?
“When we look at the racial wealth gap, that is one of the drivers of why wealth is so much lower for Latinos than it is for whites,” says Sueiro. “If more money goes towards debts and families, that’s less money going toward your bank account for savings, purchasing assets and for your retirement.”
Beginning in 2013, González sent $100 a month to help support her grandparents. At the time, she earned $45,000 a year and had $40,000 in debt. Two years later, after a role change resulted in a pay cut, she stopped contributing.
“It’s instilled from a very young age that you do anything for your family, no matter what,” she says. “Any deviation from that is met with a lot of resistance, a lot of conflicts.”
González’s parents are in their 60s. Her father never contributed to a retirement plan but does have income-generating rental properties in Mexico. Ten years ago, her mother cashed out and spent the $55,000 she had saved in her 401(k). González is estranged from her mother.
“My dad is trying to make better choices now,” she says. “It’s later in life, but at least now he’s buckling down, spending less and saving a little cash, while my mom’s going on vacation and she’s shopping. It’s harder for me to help a person that doesn’t want to be helped.”
Building Knowledge and Awareness
Urichich recently spoke with a group of Hispanic students about the importance of saving for retirement early in one’s career.
“In your first job, the one thing I’ll ask you to do is engage with your retirement plan as soon as you’re able to start saving,” she says. “The sooner you start saving, the better. A lot of Hispanics talk about retirement. We all want to retire, but we don’t talk about the retirement planning piece of it.”
González is determined to change the narrative in her community. In 2021, she founded The First Gen Mentor, an organization that encourages the BIPOC community to build generational wealth through education and financial literacy.
“It’s important to spread the knowledge with my community, with my friends and family,” she says. The knowledge sharing includes educating her two younger 20-year-old brothers.
“I sat down with them and explained how compound interest works, the tax advantages of using an IRA and all that good stuff. I know they’re somewhat set up for the future.”
With education comes implementation and González is also mapping out her future.
When she worked in corporate America, González maxed out her 401(k). The married, 33-year-old says she has reached ‘Coast FIRE’. Coast FI individuals aggressively contribute to their retirement accounts early in their careers. Because of the power of compound interest, they can ‘coast’ to retirement without making any additional contributions. González plans to retire at 50 years old.
“I feel confident and excited about my retirement plan but that’s mostly because my partner and I are childfree and plan to retire abroad for a lower cost of living.”
But amid her confidence, González’s parents’ retirement looms in the background.
“It makes me feel happy that statistically, my family and I will get to live longer, but it is a rude awakening to make sure we have all our ducks in a row so that we can live a dignified life in retirement,” she says.
“If I had all the money in the world, I’d give it to my family, but that’s not the real world we live in. Money is finite and we have to make decisions. If it’s important to help your family, that’s fine, let’s do that. But let’s come up with a plan, so you also take care of your finances. You can’t pour out of an empty cup.”