While retirement replacement rates, or the income a senior is able to replace after leaving work, have been hit hard in recent years, the impact is particularly pronounced for Black Americans, according to a new research article published by the Wharton School of the University of Pennsylvania.

According to a research paper compiled by Harvard University researchers, the median real wealth for families with a white head of the household at or over the age of 50 fell from $260,000 in 2000 to approximately $172,000 in 2019.

On the other hand, the median real wealth for families with a Black head of household dropped from roughly $72,000 to $24,000 during the same period.

“To explain this shift, [research authors Karen] Dynan and [Doug] Elmendorf point to sharp declines in the shares of families with defined benefit (DB) pensions, which traditionally have provided considerable income in retirement,” the article states. “Defined benefit plans are funded by employers, and have increasingly been replaced by defined contribution or DC plans, where employees make contributions for retirement, often with employer matches.”

The loss of defined benefit pensions has had a larger impact on these households, Harvard researchers said.

“One might hope that families without DB pensions would save more themselves, but that is not the case,” researchers said. “The challenge of receiving adequate income in retirement is especially acute for many families with Black heads, as Black-headed families … are notably less likely to have defined benefit pensions.”

Housing wealth makes up approximately two-fifths of Americans’ net wealth on average at retirement age, according to Amir Kermani, professor of finance and real estate at the University of California, Berkeley, and Francis Wong, economics professor at the Ludwig-Maximilian University of Munich.

Closing the housing return gap would likely reduce the Black-white gap in primary housing wealth at retirement to half of its current levels, the professors said in a recent presentation.

“About half of the Black-white gap can be explained by higher rates of distressed sales among Black homeowners,” they said.

The disproportionate financial services impact on Black Americans and people of color is not absent from the reverse mortgage industry.



Issues stemming from servicing and a lack of loss mitigation options have prevented the reverse mortgage product from fulfilling its potential — and have led to reverse mortgages ending in foreclosure more often than they should, according to a report published by the National Consumer Law Center (NCLC) earlier this year.