More African Americans Cut 401(k) Deferrals during Downturn

The latest Ariel Black Investor Survey found that African American investors were twice as likely to have cut their 401(k) contributions to survive the recession than were their white counterparts.

An Ariel news release said 22% of non-retired blacks (compared to 14% of whites) borrowed or withdrew money from a retirement account, while 27% of black 401(k) participants (compared to 16% of whites) reduced their deferrals.

Ariel said that is particularly disturbing news for African Americans because the median amount blacks contribute to their retirement plans is $230 per month, compared to $337 a month contributed by whites. The median assets blacks have accumulated in their current retirement plans is about half the amount that whites have accumulated: $56,000 compared to $106,000, Ariel said.

The survey found more whites were hurt by the recession than blacks in two areas: 63% of whites (compared to 45% of blacks) lost money in their retirement plans, and 39% of whites (compared with 29% of blacks) lost money outside of retirement savings.

The economic downturn has also severely impacted the retirement plans of many African Americans, according to the data.  In 2006, 40% of blacks planned to retire before they turned 60, compared to only 22% of whites. This year, only half as many African-Americans—21%—intend to retire before 60, compared to 14% of whites.

According to Ariel, nearly half of all blacks (compared to 31% of whites) dipped into savings to make ends meet in the last two years. This year, the median amount black households reported saving on a monthly basis is $189, compared to $367 among white households. The 2010 findings mark the first time in a decade that African-American households have reported saving less than $200 per month.

“In times of economic hardship, people have to make difficult decisions,” said Mellody Hobson, Ariel President, in the news release. “Unfortunately, the resulting tradeoffs mean many in our community are slipping even further behind.”

Additionally, 43% of blacks and 29% of whites report making “significant” changes to their lifestyle. Eight in ten African-Americans, and seven in ten whites, say they have cut back on spending in the last two years. In contrast, when the economy faltered in the months following 9/11, only about three in ten African-Americans and two in ten whites said they had been spending less money, according to the 2002 Black Investor Study.



Black Stock Market Investors  

The percentage of black stock market investors also continues to drop. Ariel said. This year, while the white investment rate held steady at 79%, the black investment rate is at 60%, continuing the downward trend from 68% in 2004, 64% in 2006, and 62% in 2008.

The latest data show that for the first time in the survey’s twelve-year history more African-Americans are choosing stocks and stock mutual funds as the “best investment overall” relative to real estate. Only 30% of blacks said real estate was the “best investment overall” this year, compared to 41% who picked stocks or stock mutual funds. Among whites, 27% chose real estate compared to 55% who chose stocks and stock mutual funds.

Despite being hurt by the recession, African-Americans are considerably more optimistic than whites, with 75% of blacks describing themselves as “hopeful” about the current U.S. economy. In comparison, just 41% of whites describe themselves as hopeful. Only 46% of whites feel their personal financial situation will improve over the next year, contrasted with 68% of African-Americans.

The survey included 501 blacks and 505 whites with household incomes of at least $50,000.