Sync up your retirement planning practice

Images traditionally used in financial services literature would have us believe that everyone’s perfect idea of retirement involves sitting in a beach chair, soaking up the sun with a book in hand and toes wiggled into the sand. But does this unilateral perception reflect the reality of what your client base wants or needs? Probably not. When it comes to planning, no one can be put in a solution box.

But have you thought about how cultural background affects an individual’s retirement? If not, the time is right to begin weighing this consideration into your practice. Data has shown that a person’s retirement vision can be shaped by their ethnicity, culture (whether they were raised in the U.S. or abroad), or learned family upbringing, among other factors.

To help your clients prioritize what’s critical for their success, it’s important to sync up your retirement planning suggestions with cultural expectations. Adopting a multicultural planning strategy could help diversify and expand your roster by creating a more connected experience for your prospective and existing clients.

The financial gap for retirement savers
Underlying disparity has formed uneven wealth accumulation for white versus non-white retirement savers. According to the Federal Reserve’s 2019 Survey of Consumer Finances (SCF) study:

• White families (68%) have more widespread access to employer-sponsored retirement plans—a proven driver for accumulating retirement dollars—than Black (56%), Hispanic (44%), or other non-white families (61%).
• Only 44% of Black families—and just 28% of Hispanic families—have at least one retirement account, compared with 65% of white families.
• When building a financial nest egg, nearly 30% of white families have received an inheritance or gift to help them get started. This is compared with about 10% of Black families, 7% of Hispanic families, and 18% of other non-white families.
• Among young families (younger than age 35), white families have between $11,900 and $24,800 more in median wealth than Black, Hispanic, or other non-white families. For families older than age 55, this gap widens to between $101,700 and $261,100 (particularly for white families).
• For some individuals, a general distrust of an historically unfair financial system presents a major barrier to investment and retirement saving.

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Expected retirement age
Understanding your clients’ time horizon is a fundamental aspect of retirement planning and a major determinant of anticipating future retirement costs. How could cultural attitudes affect an individual’s retirement age? Data shows that the age when a person expects to retire—and when they actually do—may correlate with their ethnicity.

According to the Employee Benefit Research Institute (EBRI)'s 2021 Retirement Confidence Survey, roughly 3 in 10 workers questioned expected to retire before age 62. Although the median expected retirement age for workers of each ethnicity (Black, Hispanic, white) is 65, a different picture emerged when retirees were asked if they retired earlier, later, or when planned.

Of Black and Hispanic retirees, 53% were more likely to report they had retired earlier than planned, compared with 46% of white retirees. When asked about reasons for retiring earlier than expected, the top response among white retirees was they could afford to retire earlier than planned. The top response among Black and Hispanic retirees was they had a health problem or disability (unrelated to COVID-19).

Family matters
When you quiz clients or prospects about their financial goals, most probably express a desire to provide for their family in retirement. But the meaning of family may have different connotations depending on your client’s culture. According to the MassMutual State of the American Family Study, Black and Hispanic families are more likely to include extended family (47% and 43%, respectively) and friends (24% and 15%, respectively). Of Asian Indian families, 41% include non-nuclear members and 44% include their parents.

Your critical role
According to the EBRI study, Black and Hispanic Americans are less likely than white retirement savers to work with a personal financial advisor—possibly as a result of not knowing where to get good financial or retirement planning advice. Black and Hispanic workers are also more likely to get retirement planning information via an employer plan, suggesting you could make a critical difference by providing financial advice and education to culturally diverse workforces.

Understanding how cultural perspectives shape your clients’ retirement dreams can help you better serve them. And employing an all-inclusive strategy as part of your overall practice mindset could open the door to a growing segment of prospects and clients.

This article was originally published in the Commonwealth Business Review, a publication of Commonwealth.