Javascript is not enabled.

Javascript must be enabled to use this site. Please enable Javascript in your browser and try again.

Skip to content
Content starts here
Leaving Website

You are now leaving and going to a website that is not operated by AARP. A different privacy policy and terms of service will apply.

7 Ideas to Reduce the Racial Retirement Gap

Social Security benefit boost, greater access to retirement plans among key steps, experts say

spinner image bridge built with puzzle pieces between two cliffs people are now walking across the bridge towards a man who has retired with enough money
Getty Images/AARP

What would it take to help millions of African Americans avoid serious financial struggles in retirement? Though saving for retirement can be difficult regardless of race, there is a large gap in financial readiness between Black and white families.

This gap is a byproduct of wealth disparities that were centuries in the making and have lasted decades after the end of legal discrimination in housing, employment and other facets of economic life. Solutions to fully close the gap likely won’t come quickly, but there are approaches that many believe can move the needle on helping Black workers retire with fewer financial hardships. 

spinner image Image Alt Attribute

AARP Membership— $12 for your first year when you sign up for Automatic Renewal

Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.

Join Now

Seven of these ideas are listed here. Some are already happening, via state and local actions or through the SECURE 2.0 Act of 2022, a package of federal measures designed to boost opportunities and incentives for workers to save.

These approaches aren’t the only ones in play, but each of them looms large in the broader national conversations about how to put a more secure retirement within reach for all Americans.

1. Bigger Social Security benefits for low-income beneficiaries

“The simplest way to address unequal access to retirement benefits is to expand Social Security benefits, especially for lower-income workers,” says Valerie Wilson, director of the Economic Policy Institute’s Program on Race, Ethnicity and the Economy.

Social Security’s benefit formula, based on lifetime earnings, replaces a larger share of income for lower earners, who are more likely to be people of color. But in dollar terms, lower wages still mean lower benefits. The median monthly benefit in 2022 was $1,397 for a Black recipient, $1,667 for a white recipient, according to Social Security data. One in 3 Black retirees rely on Social Security as their sole source of income, compared to less than 1 in 5 older whites.

Social Security has a “special minimum benefit” for people who held low-wage jobs throughout their working lives, but very few retirees qualify, and in 2024 it maxes out at $1,066.50 a month — 15 percent below the federal poverty line.

“Social Security does reduce the racial gap in retirement wealth in its current form, but it could go farther by increasing the minimum benefit,” says Gopi Shah Goda, a senior fellow at the Stanford Institute for Economic Policy Research.

spinner image map of the united states with four piggybanks on it there are four arms above with coins in their hands to deposit into the piggybanks
Getty Images/AARP

2. A national retirement savings plan

Nearly half of all U.S. private-sector employees — and more than half of those who are Black — do not have access to a retirement plan at work, according to a 2022 AARP study. The gap is especially wide for lower-income workers and employees at small businesses.

Creating a national savings plan that complements Social Security, is available to every worker and can be transferred from job to job would be “by far the most important action” policymakers could take to improve outcomes for these groups, says Teresa Ghilarducci, a labor economist with the New School for Social Research in New York City. “Overnight, that would reduce racial disparities in access.”

The idea has garnered industry support. A 2021 survey of financial experts from business, nonprofits and government by the Aspen Institute Financial Security Program found widespread backing for a national retirement plan. Financial services company TIAA includes the idea in its “Retirement Bill of Rights.”

“Many Americans, roughly 40 percent of them, run the risk of running out of money in retirement, but when you drill down and look at people of color, specifically Black Americans, the number is higher,” says Alhamisi Simms, a certified financial planner and portfolio manager at TIAA. “We’re supportive of anything that provides more access.”

Ten states have already enacted "auto IRA" programs, with support from AARP. Under these programs, most employers who do not offer savings plans must enroll qualifying workers in a state-facilitated individual retirement account.

3. Auto-enrollment for all workplace plans

When you start a new job, “you’re still trying to figure out in week one or two where the bathroom is, where the paper clips are. You’re not thinking about what happens 20 or 30 years down the road,” Simms says. “Automatic enrollment is a biggie because it takes the pressure off a new employee to get to some of these important matters, to check those boxes.”

According to a 2022 Vanguard study, workplace retirement plans that automatically enroll employees when they become eligible have a 93 percent participation rate, compared to 66 percent when workers must voluntarily opt in. Numbers like that are why SECURE 2.0 includes an auto-enrollment mandate that takes effect in 2025.

Shopping & Groceries

Coupons for Local Stores

Save on clothing, gifts, beauty and other everyday shopping needs

See more Shopping & Groceries offers >

The requirement, however, only applies to newly established 401(k) or 403(b) plans. Expanding it to cover all workplace plans “would probably make the biggest difference in terms of increasing participation rates and helping narrow that participation gap between low-wage and high-wage workers, between Black and white workers,” says Nari Rhee, director of the retirement security program at the University of California, Berkeley, Labor Center.

spinner image workplace desk with chair and monitor and an emergency savings jar on desk
Getty Images/AARP

4. Workplace emergency savings accounts

Research shows how having emergency savings today can shape retirement security in the future. One recent study found that during the pandemic, households with at least $1,000 in rainy-day funds were half as likely to withdraw from a retirement plan as those with nothing socked away.

That puts emergency-saving tools squarely in the mix for addressing retirement shortfalls. Major companies such as Starbucks and Delta Air Lines have added emergency savings to employee benefit options. Starting in 2024, SECURE 2.0 authorizes employers that offer retirement plans to automatically enroll most workers in parallel emergency savings accounts of up to $2,500, funded by payroll deductions.

Access to job-based rainy-day funds could have a particularly high impact for Black households, which generally have far less in emergency savings than white families and are more likely to tap retirement accounts when facing an unplanned expense.

“We are finding that a universal auto IRA with emergency savings greatly increases household wealth for Black and Hispanic households,” says David John, a senior strategic policy adviser with the AARP Public Policy Institute and co-author of a recent report on the proposal.

The December 2023 study, based on national survey data on household finances and predictive models of financial behavior, projected that a universal auto IRA with an emergency savings component would increase retirement net worth by 71 percent for white households and 89 percent for Black and Hispanic households.

5. A retirement savings match

The government uses tax breaks to encourage saving, with bigger deductions for bigger contributions (up to caps set by the IRS). That steers the biggest benefit to higher earners who can most afford to save, Rhee says. “We need to restructure the subsidies so that more of the tax benefits go towards low-income households that actually need the help.”

SECURE 2.0 takes a step in that direction by revamping one tax rule that does target lower earners. The Saver’s Credit provides a tax credit of up to $1,000 for low-  and moderate-income people who make qualifying contributions to a retirement account. In 2027, it will become the Saver’s Match, a federal matching contribution of up to $1,000 deposited into the recipient’s IRA or workplace plan (up to $2,000 for a couple who file taxes jointly and both make qualifying retirement contributions).

spinner image membership-card-w-shadow-192x134


Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.

Along with directly boosting participants’ nest eggs, the Saver’s Match loosens income requirements for eligibility. And unlike the current credit, it will be refundable, meaning you can get the full amount you are due even if it exceeds your tax bill.

Wilson says the Saver’s Match is “the best thing about SECURE 2.0.” Rhee also praises the new rule but says the government could use matches even more to level the playing field in tax treatment of retirement savings. “We give so much money to the richest households to save for retirement, and we’re still just providing a pittance for low-wage workers,” she says.

6. A higher minimum wage

The more you earn, the more you can save. That fact is a hurdle for workers in low-wage jobs, a disproportionate share of whom are Black.

“We want to enhance households’ ability to save. That means raising wages and lower expenses,” says Naomi Zewde, an assistant professor at the UCLA Fielding School of Public Health who studies health and wealth inequality.

The federal minimum wage has been $7.25 an hour since 2009. Thirty states, Washington, D.C., and Puerto Rico have higher standards, ranging in 2024 from $8.75 to $17 an hour, and dozens of cities have enacted their own increases. While low-wage workers experienced substantial pay growth during the pandemic, 14 percent of U.S workers — about 19.5 million people — still earn less than $15 an hour, including 18 percent of Black and Hispanic workers and 12 percent of white workers, according to tracking by the Economic Policy Institute.

Raising the minimum doesn’t just benefit the very lowest-earning workers, says Karen Smith, a senior fellow in the Income and Benefits Policy Center at the Urban Institute — it can have a ripple effect, boosting earnings up the pay scale.

“These higher earnings would increase workers’ ability to save for retirement, save to purchase a home, increase Social Security benefits that depend on lifetime earnings,” she says.

Critics of raising the minimum wage say higher labor costs will increase unemployment and hurt small companies, although business opposition to the idea has softened in recent years. Smith says data from cities that have increased their minimum wage shows a “relatively small negative impact on employment,” while reducing wage inequality “has a big impact on reducing the racial income gap in retirement.” 

7. More affordable student loan repayment

Due in large part to racial disparities in income and family wealth, Black students are more likely than white peers to take out a college loan and typically must borrow larger amounts, the St. Louis Fed found in a November 2022 study.

They also have a harder time paying it back. Four years after graduating, the average Black borrower owes 105 percent of their student loan — that is, more than they borrowed in the first place — compared to 73 percent for white grads, according to Department of Education data.

That debt can exacerbate wealth inequality because after borrowing more to finance higher education, most Black workers “are still paid less than their white counterparts with similar education levels,” says Dania Francis, an assistant professor of economics at the University of Massachusetts Boston. “Eliminating the racial student loan debt gap would help improve the racial retirement savings gap by freeing up more disposable income for Black workers to contribute to retirement savings.”

Greater access to income-driven repayment plans can help by making monthly student loan payments more affordable for lower earners. The federal government is rolling out a new plan, Saving on a Valuable Education (SAVE), that expands eligibility for income-driven repayment.

The Department of Education says SAVE will cut total lifetime student loan payments by 40 percent on average for qualifying borrowers and by 50 percent for those who are Black, Hispanic and Native American.

Discover AARP Members Only Access

Join AARP to Continue

Already a Member?