Closing savings gaps for participants

Even getting access to a retirement plan remains a fundamental issue for many Americans

Lisa (Garcia) Drake, a retirement plan consultant at SageView Advisory Group , spends her days chipping away at macro retirement issues she understands all too well. When working with employers on the savings barriers facing women and minorities, she brings her own personal narrative.

“Being a single mom for a long time, I can relate to that group of people, as well. It’s really important for the industry and especially personally for me, that we work to address this need.”

Getting access to a retirement plan remains one of the fundamental issues to closing the retirement savings gap facing millions of Americans. Financial literacy, savings rates, gaps from employment all have an impact on how Americans are saving for retirement, and many of these gaps occur along racial and gender lines.

Lisa is one of many advisors and consultants helping employers engage with diverse communities on plan access and other barriers to retirement savings. Jeff Cullen, Chief Executive Officer, Strategic Retirement Partners , and Jania Stout, Senior Vice President, Retirement + Wealth, OneDigital , also lend their perspectives on what can be done to address the issues.

Identifying gaps

Underrepresented groups face different but related challenges when it comes to retirement savings: They are being left behind by our retirement system. Systemic issues, such as pay inequality, employment gaps for those with primary caregiver responsibilities, uneven career paths and financial literacy all impact retirement savings rates and financial readiness. Further, those with higher levels of debt are also negatively impacted, specifically African Americans, Hispanics and unmarried women. Even 62% of higher-earning Black Americans report debt problems, as do 58% of Hispanics, compared to just 37% for higher-earning white Americans. Research shows that type of debt, how that debt persists and a lack of educational and advisory relationships have a lasting and systemic effect.

When working with organizations of various sizes, Jeff Cullen sees the need to engage with a broad swathe of demographics and dive deeper into specific characteristics of those falling behind. “[From these groups] we hear a lack of understanding as to the stock market, financial markets in general, and just a level of discomfort. That lack of knowledge and fear caused many participants not to engage with retirement plans,” he says.

“In a lot of Hispanic communities, there is a cultural need for remittances. Those participants can’t save for themselves, when they’re already saving to send money home,” Jeff continues. “We need to understand all these nuances to be able to better serve these participants.”

“It’s really important to close the racial and gender retirement gaps in this country, because the United States is a melting pot,” says Jania Stout. “We have to make sure that everybody in America is saving at an appropriate rate regardless of gender, regardless of race. We’ve got to look at both gender and race and make sure we’re providing the right tools and resources for all.”

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The need for financial education

Lisa makes the point that one of the most certain ways to help close these gaps is through delivering financial literacy to participants. “I wish savers knew more about lifetime income and what it is. There are great ways to provide income for life, but if participants don’t know about enough, they might shy away. I would hope that most people, when they’re learning about these solutions, trust their employer enough to know that it’s been vetted by the committee, financial advisors like us. It can be overwhelming even for advisors like us who are embedded in the industry. A lot of employees and participants don’t understand retirement plans. They don’t understand investment options. They don’t understand lifetime income. As advisors, we can make a huge difference by being out there and educating employees about the importance of saving.”

A 2023 TIAA Institute study backs up this point, particularly across black and Hispanic populations. The study examined financial literacy by asking a series of questions across eight areas of personal finance. While white men answered 58% of questions correctly in the TIAA study, black men only answered 37% correctly. The levels of literacy are linked to education, earnings and proximity to retirement. Plus, structural and linguistic differences need to be considered. Advisors have a role in helping to bridge historic education gaps to ensure a better retirement for all.

“Our solution has always been one-on-one education,” Jeff states, seeing the need for targeted education programs. “We should be sitting down with every person, no matter where they are in the corporate food chain, making sure that they feel confident to make the right decisions.”

He adds that certain companies need to offer this benefit, especially larger corporations that may be leaving some of their employees behind. “We can educate through these knowledge gaps. We can earn trust and get people to begin their journey towards gaining more financial knowledge. The problem with larger employers is that most of them don’t pay for those kinds of benefits. Very large employers will frequently pay for financial planning for their C-suite, but they won’t pay for somebody to do a half-hour meeting once a year with all of their workers.”

Lisa advocates for saving early and wants advisors to connect with younger cohorts sooner rather than later to help alleviate gaps in savings levels. “The biggest barrier is understanding the importance of saving early because then everything else falls into place. When you start saving early, you have more opportunities to make better choices. Getting that knowledge earlier in your career is the best first step anyone can take.”

“But some individuals don’t feel that they make enough money because they are living paycheck to paycheck,” adds Jania, addressing a common problem seen among lower-earning employees. “It doesn’t matter how much we tell them that they need to save, they are still trying to make ends meet. But with SECURE 2.0, we saw a number of emergency savings provisions added to help those individuals get into the habit of saving. If we can teach that, we can eventually get people to transition that thought into saving for retirement.”

Jeff also sees the need for advisors to be the right people for the job. “If participants can hear the message from people they identify with, that would have a positive impact. Our firm has a robust Diversity, Equity and Inclusion program, and we pay close attention to hiring people from all backgrounds, including those just starting out in financial services. If you only hire from within the [financial services] industry, you’re probably not going to find the diversity needed to address the various racial classes in Corporate America. We have to think bigger. We have to give people a hand up, pull people in from outside and change the messenger.”

Being on the ground

Jania says we ought to double down on plan design to help address the needs of an evolving and increasingly remote workforce to address the access issues. “We see issues with larger organizations that have hundreds of locations all over the country and with employees that are younger and maybe don’t know why they should be saving. And if there isn’t automatic enrollment, it’s hard to get to thousands of employees all over the country to engage.”

Engagement is also key for Jeff. “We have to work hard to engage the community, to find that one person within the community that participants trust. Get that one person to buy in, and then that person gets everybody into the plan.”

Building that network of trust and being advisors to the wider community can work to close retirement gaps, according to Jeff. “It is our job as advisors to find that influencer who can get the community behind retirement planning. Get them understanding, then we can help educate those communities. We’re helping to facilitate, but it’s really being driven through people within that community.”

The need to help communities understand retirement planning remains paramount for Lisa. “When you’re communicating to individuals and helping them understand how retirement plans work, it’s breaking down the language. Small bites of information, making it relatable, not talking big numbers, not showing high account balances. The more we can relate with people, the better.”

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