Hispanics face greater retirement risks

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Sep 14, 2017

With longer life expectancies and fewer savings than the overall population, longevity risk, or the threat of outliving one’s assets, presents a potentially bigger challenge for Hispanic Americans.  

Indeed, while longer life spans are undoubtedly a gift, even a few extra years of living expenses can take its toll on one’s savings, particularly given the higher health care costs associated with old age and the impact of inflation on purchasing power.

“The bottom line is that the trifecta of living longer, overall health issues, and lower lifetime earnings and — consequently savings — means that Hispanics face a much higher risk of outliving their savings,” said Stipica Mudrazija, a research associate with the Urban Institute’s Income and Benefits Policy Center and co-author of the group’s 2016 Hispanics’ Retirement Security study. “That is partly because of longevity, but also perhaps because their financial needs may be greater.”

The ethnic divide

According to the National Center for Health Statistics, Hispanics in the United States live roughly three years longer than their non-Hispanic Caucasian peers, and about 6.8 years longer than non-Hispanic African Americans.1

They also retire with significantly less banked on average than some other ethnic groups. Using 2012 data, the Urban Institute economic think tank found that foreign-born Hispanics at age 65 or older had less than $31,000 in accumulated wealth, while U.S.-born Latinos had roughly $85,000. That compares with $51,600 for non-Hispanic African Americans, and $280,000 for Caucasians in that age group.2(Retirement Income Calculator)

Shortfalls in earnings and workplace retirement plans earlier in life likely account for much of the financial hardship that many older Hispanics face in retirement, especially those born outside the United States, the study authors concluded.

They note, too, that a higher incidence of health problems, especially those that result in functional limitations, create additional challenges for many older Hispanics. Among adults age 75 and older, the data show, 33 percent of foreign-born Hispanics and 31 percent of U.S.-born Hispanics reported serious disabilities or severe cognitive impairment, compared with 13 percent of non-Hispanic whites.

That point is not lost on Latinos. A 2013 “State of the American Family” study from MassMutual found Hispanics are more concerned than the general population about outliving their retirement savings (40 percent compared to 33 percent). In addition, a higher proportion of Hispanics say that they have developed a retirement plan (44 percent, compared to 35 percent of the general population).

The ethnic divide is also apparent where life insurance is concerned. The most recent data from market research group LIMRA found Hispanics have the lowest rates of life insurance ownership among minority populations with household income of $25,000 or greater. Roughly 36 percent of Hispanics say that they own life insurance, versus 63 percent of Asian Indians, 52 percent of African Americans, 47 percent of Chinese Americans, and 44 percent of the overall U.S. population.3 (Related: 9 questions to ask about life insurance)

Taking care of their own

Yet, the data may paint too dire a picture. Indeed, they do not account for cultural norms that may bolster the financial security of Hispanic seniors. 

“It does not include some of the compositional issues in the way the Hispanic population may be able to work around this issue [of longevity risk],” said Mudrazija in an interview, noting many rely heavily on their immediate family for financial and health care support.

Louis Barajas, a financial professional with Wealth Management LAB in Tustin, California, and author of The Latino Journey to Financial Greatness, agreed.

“Everyone in Hispanic families takes care of each other,” he said, noting that in many cases multiple generations live together, including children, parents, and grandparents. “It’s very similar to the Asian culture, in which they still take care of their parents.”

Family members who become higher-paid professionals, like doctors or lawyers, also often support their family, he added. They not only take care of their own kids and parents, but they take care of their nieces and nephews, as well.

Barajas said one of his Latino clients burned through her entire savings – nest egg and all – to help care for her two adult sons, now in their 40s, who still live at home. When her money runs out this year, he said, her sons have agreed to start financially supporting her.

That’s true where long-term care is concerned, as well.

“The parents fall back on their kids,” said Barajas. “I deal with many Anglo [Caucasian] clients who worry a great deal about long term care, but in many Latino homes the plan for long-term care is the older daughter moving back in with the parent to act as a caregiver. Often, the rest of the siblings help that caregiver out.  That’s very common.”

Mudrazija, however, noted that dynamic is starting to shift. “Women’s labor force participation rates have increased in recent decades so the traditional model, where the older daughters became the primary caregivers, is not as common anymore,” he said. “Increasingly, adult women are working along with their male siblings and simply may not be physically able to fill the caregiver role that they traditionally did.”

But that doesn’t mean they’ve stopped providing financial support. 

Barajas recalled one elderly Hispanic widow who spoke with him about purchasing long-term care insurance coverage. Her adult daughter, who lives in Seattle, insisted on joining the meeting by conference call. “She was on the phone, and when I told her mom what the policy would cost, the daughter jumped in and said that she and her sister were going to pay for it since they both lived in different states and were not around to provide the care themselves,” he said.  

Barajas added that many Hispanics he works with, especially those in the low- to moderate-income bracket, have simpler expectations for retirement than their non-Hispanic peers. As a result, they may need less saved.

“There is a different lifestyle expectation for retirement,” he said. “It’s not like the commercials you see on TV where an older white couple is going on a cruise or spending their days on the golf course. They’re not necessarily planning to travel when they’re older. They just want enough to take the kids to breakfast or have them come to the house so they can cook for them. The financial expectations are often much lower.”

Making ends meet

There’s no “silver bullet” to solve the issue of longevity risk for elderly Hispanics, said Mudrazija.

Automatic enrollment in retirement plans like 401(k)s, he said, has been shown to increase household wealth and encourage a habit of lifelong saving across all cultures and races, but that only benefits those who work for employers that offer such features as part of their benefits package.

Others can potentially delay claiming Social Security to maximize what may be their only guaranteed source of income. The amount you collect monthly increases slightly for each month you delay. If your full retirement age is 66, for example, you would get 108 percent of the monthly benefit by waiting until age 67. By waiting until age 70 (when the monthly benefit stops increasing regardless of whether you delay), you would collect 132 percent of your monthly benefit.

Similarly, seniors who have undersaved and are physically able, especially those with a long life expectancy, can stay employed longer to put more money away and delay dipping into their existing savings by a few extra years.

Making sure the income stream remains steady during your working years should also be a priority, and disability income insurance, which can help pay the bills if you can no longer earn a paycheck due to injury or illness, may be one solution to address that need. (Calculator: How much disability income insurance do I need?)

With longer life expectancies and less saved for retirement, Hispanic families face unique challenges in securing their financial future. As the largest multicultural group in the United States, however, they also have the opportunity to engage in their own financial planning by working closely with a financial advisor, delaying their retirement, claiming Social Security later, and protecting their families through adequate insurance coverage.

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Centers for Disease Control, “National Vital Statistics Reports: United States Life Tables, 2012,” 2016.
2 The Urban Institute, “Hispanics’ Retirement Security,” 2016.
LIMRA, “Life Insurance Ownership in Focus – Households,” 2016 .