Photo: Flickr via longislandwins
After the dust settles over the recession, it’s becoming increasingly clear that African Americans will have the most lost ground to cover–especially in retirement planning. A new report by Aon Hewitt and Ariel Investments shows just how much damage deteriorating finances and a weak job market has done to their nest eggs.
“Compared to their Asian and white counterparts, African-American and Hispanic employees are eroding their retirement savings at an alarming rate,” the report says.
When funds are tight, Black workers dip into their 401(k) contributions for loans at a rate of 8.8 per cent–more than four times as often as whites and about seven times as much as Asians.
What’s more, two-thirds of African American workers cash out their 401(k) balances after they leave their employer rather than rolling the funds over. Hispanics aren’t far behind, withdrawing balances at a rate of 57 per cent.
Photo: Ariel Investments
Apart from potential early withdrawal penalties (some as high as 10 per cent) and the risk that they’ll never be able to pay the funds back, consumers are also losing the chance to let that money grow over time.
“Most employees who cash out their savings will never be able to rebuild their balance,” said Mellody Hobson, president of Ariel Investments. “Minority workers disproportionately affected by layoffs feel like they have no choice other than drain their retirement savings in order to make ends meet while unemployed.”
According to Bill Losey, author of “Retire in a Weekend”, employer contributions should be the last possible resort when cash is low.
“The interest on a 401(k) loan is typically one or two points above the prime rate,” he told U.S. News & World Report. On the other had, borrowing from a credit union or using a zero-per cent APR credit card like a short-term loan could make better alternatives.
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