What you should know as you prepare for the next chapter.
Lack of retirement savings can ruin your wealth and retirement.
Thirty years ago, African-Americans worked for one employer until age 62 and owned one house their entire life. Upon retirement, an average African-American couple would collect a pension and Social Security totaling $50,000 annually. With no housing payments – as their mortgage was paid off before retirement – an African-American couple could live a pleasantly comfortable lifestyle, vacationing all over the world.
Today, the likelihood of collecting a pension and Social Security over $50,000 is slim to none. Most African-Americans will serve in three to seven jobs throughout their 30- to 40-year work life, collecting small pensions, if any. Many companies added a provision to substitute $1 of pension benefit for each $1 of Social Security collected, permanently reducing retirement payments. Lastly, many companies have substituted pensions for 401(k) self-directed plans with an employer match. In 2014, Time magazine reported $24 billion in unclaimed employer match funds as, sadly, people are not contributing to these plans.
According to Forbes, the average African-American retirement savings portfolio is $10,500 while the average Caucasian American portfolio is $105,000. If you are not saving for retirement, you are headed for retirement poverty. But, worse yet, you have created a barrier to execute your goals, as retirement savings can be utilized to finance businesses, etc.
So the need is there, but how do we increase our retirement savings? Here are a few suggestions.
1. Remove autopilot spending habits.
Some items we purchase no longer provide the joy and satisfaction they once did, such as the latte every day. Saving that $4.23 every day for a month generates an extra $126.90 per month. Over 20 years, this small amount at 12 percent interest (meaning an investment in the stock market) is $126,791.87.
2. Get a new job, promotion or raise.
We can get comfortable or complacent in asking for our worth – or seeking opportunities that reward it. Consider what you do, your unique skills, and do research to ensure you're being paid competitively. If not, ask for a raise or look for a job that pays you your value. Save the entire increase in your retirement portfolio.
3. Become a little more aggressive in investing with mutual funds.
African-Americans play it safe, often investing in guaranteed or conservative low-interest – meaning, a portfolio will not grow. Mutual funds are portfolio groupings of individual investments by specialty. They provide diversification as they invest in more than one company.
Rather than rush off to read investing research reports to choose your mutual funds, be observant. Look around your community to find ideas for companies you want in a mutual fund. You may find high-performing companies, such as Dollar Tree or O'Reilly Auto Parts, or buy the stocks or bonds of the company products you purchase – such as Disney, iPhone, Apple and beverages like Coca-Cola or Pepsi. You can also choose from a variety of fast-growing technology companies which are weathering any economic storm. In short: Understanding mutual fund investing is a long-term marathon and not a short-term sprint.
Retirement savings is the core of your wealth. If you have not seriously decided to invest in contributing, do so now.
Ida Byrd-Hill is the CEO of Weyn.biz, a casual mobile video game developer building its first game, My Dream Empire, to lead players through typical financial struggles as they build their dream lifestyle. She combines her 10-plus years as a wealth manager with 13 years in nonprofit technology training.