D. Preparation

The Federal Reserve released a report discussing the growing retirement crisis in America. Their report revealed that a growing number of Americans are not prepared for retirement, citing that “nearly a third of Americans over the age of eighteen have no retirement savings.” A team of researchers from the Urban Institute attributes this crisis to the fact that Hispanics and African-Americans have less wealth than white families over their lifetime. This study reveals some very staggering numbers. It was reported that in 2013, the median white family had twelve times the wealth of the median African-American family. The Federal Reserve analysis attributes a few reasons minority families have difficulty saving for retirement. First, African-American and Hispanics have very low rates of home ownership. Second, African-American families have on average a higher level of student loan debt. More importantly, the Urban Institute notes that “‘people of color disproportionately attend for-profit schools, which have low graduation rates.’ That means that African-Americans aren't just taking on more in debt. They also aren't always *507 getting a degree for that debt.” Lastly, minorities groups have less participation in retirement savings accounts.

In light of the information mentioned above, many have debated whether Social Security as a program still remains a viable option for minority investors. Proponents of change champion an argument that illustrates that the money paid into Social Security by lower income Americans (primarily African-American and Hispanic-Americans) would be best if invested in a private savings account in lieu of Social Security. Opponents of privatization have called this logic flawed and suggest that it would be foolish to invest primarily in the market.

A hypothetical market analysis conducted by William Shipman and Peter Ferrara reveal that privatization may not be as risky as many have originally thought. Shipman and Ferrara analyze a hypothetical senior citizen, who retired at the end of 2009 at age sixty-six, and set up a personal retirement savings account upon entering the workforce in 1965 around the age of twenty-one. If they were to pay into his personal account what he and his employer would have paid into Social Security, investing his entire portfolio in the stock market for all his working years he would have fared better in the market than he would have through the Social Security tax. Additionally, this example accounts for the market downturn of 2009. Shipman and Ferrara theorize that their investment strategy would have paid seventy-five percent more in retirement than Social Security. Furthermore, the money that was saved is personal wealth and can be *508 liquidated at any time. Additionally, even more important, for the concept of family wealth which is a serious problem in minority communities, this money can be passed onto future generations, unlike Social Security which ceases upon death. Shipman and Ferrara present a hypothetical that is common among wealthy Americans. Investment in the market and stock ownership is how generational wealth is accumulated; however, it is low-income Americans that need the capital to make these investments.

Although Shipman and Ferra make a very persuasive point, they fail to account for the simple fact that, when implemented, Social Security was not intended to account for the sole source of retirement savings. Social Security was originally intended to serve as one of the three-forms of retirement income; a system the Social Security Administration coined as the three-legged stool of retirement. The core idea of Social Security was that Social Security would not undertake to furnish a comprehensive defense to all whom it protected. The social insurance approach is to assure that benefits would provide minimum coverage. The individual accepts the obligation of obtaining supplementary protection and investing through private sources. Additionally, although persuasive, it does not account for the large discrepancy in income over lifetime between African-Americans and whites in terms of net income. What remains clear, however, in the Shipman and Ferra study is that unconventional thinking is important and critical to developing solutions to the retirement issues that African-Americans face in their later years.

As noted above, Social Security was only intended to serve as one of the three-legs of retirement income for Americans. Therefore, sole reliance on Social Security in retirement is far beyond the scope of the program as originally drafted. Thus, any solutions proffered should account for the systems capacities to supplement additional *509 income sources in retirement. Planning for retirement has several important components and requires years of preparation. African-Americans and minorities are faced with unique challenges in retirement and those challenges must be understood when developing a retirement plan. A consistent challenge many policy advisors and economists mention when describing issues regarding minority populations and retirement are access to quality information regarding retirement. This lack of information serves as an obstacle in terms of making sound financial decisions. Furthermore, with the shift from defined benefit to defined contribution pensions, knowledge on how much to save and how much to invest is critical.

In a speech given at the American Retirement Summit, the Commissioner of the SEC warned Americans about the changing nature of retirement planning. Commissioner Aguilar states that retirement decisions,

have to be made in a financial market that has become exponentially more complex with financial products and investment strategies unheard of just a few years ago ... A significant issue remains whether investors are at an information asymmetry disadvantage when it comes to these products and what the solution should be.

Commissioner Aguilar stresses the importance of “demystify[ing] the retirement planning process and the risks associated with investment products.” Most importantly, Commissioner Aguilar acknowledges that training around financial literacy is not common practice in grade school, high school, or offered at the university level. The Commissioner stresses the need for government officials to develop clear and concise information regarding financial literacy education.