Most Latinos don’t save for retirement, and information matters

Many Latinos are not saving enough – or not at all – for their retirement.

More than two-thirds of Hispanic households put nothing aside through workplace savings vehicles such as 401 (k) plans, according to a Morningstar report. Private pension plans like individual retirement accounts don’t fill the void. Only 8% say they have an IRA or similar plan.

Part of the reason is the confusion surrounding retirement planning, said Louis Barajas, a certified financial planner who works with the Latin American community in East Los Angeles.

“There is a tremendous amount of misinformation,” he said, referring to what people hear from family or friends in the community.

“A lot of Latinos don’t have a parental background,” said Barajas, president and partner of MGO Private Wealth, based in Irvine, Calif., And a member of the CNBC Financial Advisor Council. “Parents have never been invested – so they are learning for the first time.”

While income is a factor for everyone, regardless of race and ethnicity, education really matters, according to Morningstar. Hispanic households headed by an adult who has completed college have a retirement savings rate 1.1 percentage points higher than those who have not completed high school. The difference is only 0.3 percentage point higher among white households.

There is also the question of accessibility. Hispanic households are 17% less likely than white households to have access to a retirement plan, according to Morningstar.

Instead of retirement accounts, they tend to focus on low performing assets, such as homes and automobiles. Existing research shows that there is a progression of assets with income – people start with things like homes and vehicles, then move on to higher-yielding assets, such as investment accounts, said Samantha Lamas, behavioral researcher at Morningstar and co-author of the report. .

“It might really be more a matter of necessity than a conscious choice to do it… which means they just can’t afford to save in a retirement account right now,” he said. she declared. “They now have to focus on their direct needs, which is a house or a car.”

Even when some are saving for retirement, it is erratic. The assumption is that this is due to a withdrawal of money from the account.

Existing Morningstar research found that people who had emergency savings accounts throughout the Covid pandemic were less likely to have to dip into their retirement savings, Lamas pointed out.

One of the first steps to financial security is to build this emergency savings fund.

Employers can play a role. Some already offer emergency savings plans through automatic after-tax paycheck withdrawals.

“These will really help families not to dip into their retirement savings when faced with an emergency,” said Michael Thompson, Morningstar Behavior Specialist, who also co-authored the report.

Access to retirement accounts is also important. Hispanic households are 17% less likely than white households to have access to a retirement plan, according to Morningstar.

This may be due in part to the size of the employer they work for, Thompson noted. To address the lack of availability in small businesses, the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 created Common Employer Plans (PEP). The plans allow small businesses to come together to provide employees with a pension plan.

When plans are available, automatic participant enrollment can help, Thompson said.

“The days of just trying to hope that people would go for something so important should really be a thing of the past,” he said.

Achieving income equality should also be a goal, addressed through pay equity initiatives and policy changes, concludes the Morningstar report.

In 2019, Hispanic and Latino families had only $ 38,000 in median wealth, or 21 cents for every dollar of white family wealth, according to the St. Louis Federal Reserve. Then the pandemic struck, during which Hispanics and Latinos had the highest unemployment rates. Latinas are typically only paid 57 cents for every dollar paid to a non-Hispanic white male, according to an analysis by the National Women’s Law Center.

While employer and policy changes make a big difference, trying to make changes in behavior can also help. Setting up automatic withdrawals from a check to a savings account can help build an emergency fund.

Even though people may think they don’t have money to save for retirement, they might be surprised, Barajas said.

He has had clients who said the same thing, but still managed to set aside 10 percent of their income.

“You’ll get used to it, like anything else,” he said.

Disclosure: Invest in yourself: ready. Adjust. To grow. is a financial wellness and education initiative of CNBC and Acorns, the microinvestment app. NBCUniversal and Comcast Ventures invest in Tassels.

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