Karen Dynan and Douglas Elmendorf.Racial disparities in the United States lead to many inequalities, but perhaps one of the most lasting is how these inequalities affect income, wealth, and economic well-being in retirement and intergenerationally. Research by HKS’s Karen Dynan and Doug Elmendorf examines changes in racial gaps in the economic security of retirees, focusing on the relative position of Black and white families. Dynan is a professor of the practice in the Harvard University Department of Economics and at Harvard Kennedy School. She is an affiliate of the Mossavar-Rahmani Center for Business and Government, the Belfer Center for International Affairs, and the Center for International Development, as well as serving as a senior fellow for the Peterson Institute for International Economics and the chair of the AEA’s Committee on Economic Statistics. Doug Elmendorf is the outgoing dean of HKS and also the Don K. Price Professor of Public Policy. He previously served as the director of the Congressional Budget Office and as assistant director in the Division of Research and Statistics at the Federal Reserve Board. A working paper version of their study is available here.


Q: How have racial gaps in retirement security evolved over time, and are there any notable trends or patterns that emerge from your analysis?

Our study, which uses data from the first two decades of the 2000s to explore disparities in the economic security that families of different races are likely to experience in retirement, has several key findings. Most importantly, the racial gaps are sizable. This finding is not too surprising given earlier studies documenting very large disparities in the average amounts of financial and housing wealth that families of different races hold.

We showed also that income from two other major components of retirement security—defined-benefit pensions and Social Security—reduces disparities somewhat, because they are generally more evenly distributed than financial and housing wealth. But the gaps are only partial offset: Families with Black heads, on average, are likely to experience a lower standard of living in retirement than families with white heads.

Our study also looked at how retirement security changed between 2001 and 2019. We found patterns that were very discouraging. For example, the median ratio of financial and housing wealth to income declined by about 15% for families with white heads in their 50s and by nearly 60% for families with Black heads in their 50s. Together with a large drop in the prevalence of defined-benefit pensions over this period, these patterns implied that both white and Black families approaching typical retirement ages were much less financially prepared to stop working than earlier generations.


Q: What factors are behind these patterns?

The racial gap in retirement security is driven largely by disparities in how much financial and housing wealth families of different races are able to accumulate. Earlier studies suggest that those disparities have many complicated causes, including differences in inheritances, differences in educational and employment opportunities, discrimination, and other structural barriers to economic mobility. The recent growth in this literature has been a welcome development, as there is much more to be learned about the roles of these various factors.

One issue that we explore is the effects of the Great Recession of 2007-2009 on accumulated wealth and hence retirement security. Millions of U.S. families experienced unemployment, depletion of their accumulated wealth, and the loss of their homes during that economic downturn, and it was about a decade before the labor market became fully healthy again. We showed that long-term unemployment (which Black-headed families were about twice as likely to experience as White-headed families) was correlated with families seeing a smaller recovery of their wealth after the recession. In addition, declines in homeownership during the early- and mid-2010s, which were more pronounced for Black-headed families, meant that fewer families benefited from the rebound in home prices in the 2010s.

“Families with Black heads, on average, are likely to experience a lower standard of living in retirement than families with white heads.”

Karen Dynan and Doug Elmendorf

Q: The issue of racial gaps in retirement security is becoming even more important as the share of our population that is older than 65 increases. What policy measures do you suggest to mitigate and address these gaps?

There are many policies that could boost retirement security generally and also reduce racial gaps in retirement security. Our paper highlights two types of policies that would be consequential. First, our results, showing lasting economic scars from the Great Recession, highlight the importance of government policies that mitigate the harms of recessions. Such policies affect racial gaps because recessions tend to cause more job loss among workers in disadvantaged racial and ethnic groups than among other workers.

Our study also demonstrates the importance of the Social Security program for retirement security of families who have low and moderate income prior to retirement, groups in which Black families are disproportionately represented. With the Social Security program projected not to be financially solvent over the longer run, changes will need to be made to this program. We think our findings can help inform the coming policy debate so that changes do not exacerbate racial gaps and hopefully reduce them.


Q: The data you consider only extends through 2019. Do we know anything about the evolution of retirement security—and racial gaps in retirement security—in the 2020s?

The encouraging news is that the available data suggest that many families may have been able to significantly bolster their future retirement security in the early 2020s. Although the early pandemic period saw a shocking amount of job loss, the U.S. government responded with policies that replaced, or more than replaced, the lost income of many workers. People also appeared to have saved a lot of money in 2020 when they were stuck inside their homes avoiding activities that could expose them to the virus. Also, families that own homes and stocks have enjoyed large capital gains on those assets in the last few years.

Research based on the Survey of Consumer Finances has documented material increases in the accumulated wealth for families of different major racial and ethnic groups between 2019 and 2022. For example, the wealth of the typical Black family rose by about 60% over this period, compared with an increase of about 30% for the typical White family. The larger percent increase for the typical Black family does not imply a closing of the wealth gap, as that family started with much less wealth in dollar terms, but it is good news.

We look forward to exploring the implications of these developments in more detail in future work, with an emphasis on retirement security. One question is the degree to which families—generally and of different races—have held on to the wealth that they accumulated in the early 2020s. The strong post-COVID job market has likely been good for household saving. On the other hand, higher inflation means that any given amount of saving does not go as far. We also plan to look at how other factors affecting retirement security, such as the prevalence of defined-benefit pensions, have changed in recent years. Our findings confirm that both business interest and government policy related to pensions matter crucially for families’ retirement security.

Photograph by Katleho Seisa/Getty Images

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