Isabel M. Estrada Portales
07/15/2005

As have been said many times, too many Americans, and too too many Latinos are not saving adequately for retirement, and this has, according to experts, a particularly painful effect on minorities who tend to hold lower paying jobs with little or no benefits, or pensions.

But according to a new study released Wednesday by the Retirement Security Project (RSP) and the National Council of La Raza (NCLR), common sense could come to the rescue of Latinos retirement-wise.

“We know what works to raise household savings: we need to make it easier and provide proper incentives. The evidence shows that common-sense steps to improve retirement security would be of particular benefit for Latinos, who unfortunately are often starting from a much lower savings rate,” said Peter Orszag, director of The Retirement Security Project.

Steps such as automatic enrollment in 401(k) plans, expanding the Saver's Credit, updating the rules for how retirement accounts are handled in means-tested programs, and implementing targeted financial counseling for retirement savings would substantially improve retirement security for Latino workers.

Congressmen Mario Diaz-Balart (R-FL) and Xavier Becerra (D-CA) were joined by David John of The Heritage Foundation to confirm their support for the evidence-based policy solutions set forth in the report.

The report, Retirement Security for Latinos: Bolstering Coverage, Savings and Adequacy , shows automatic enrollment has been shown to increase Latino 401(k) participation from 19% to 75%.

Under automatic enrollment, workers are enrolled in a 401(k) plan unless they opt out, as opposed to having to sign up for the plan in order to participate. Even among Hispanic workers earning less than $20,000, automatic enrollment raised participation from 4% to 55%.

As it stands right now, Hispanics participate in employer-based 401(k) at half the rate of the general population, and the balance in those accounts averages $10,480 versus $53,670 for the population as a whole.

“Of the challenges facing the Latino community, retirement savings is one of the biggest. The combination of several factors regarding Hispanics – they have longer life expectancies, lower wages during their working years, and less savings in both private- and employer-based accounts – means we need to act now,” said Eric Rodriguez, the Director of the Policy Analysis Center at the National Council of La Raza.

“The encouraging part is that some simple tweaks to the system, which have already garnered bipartisan support, can go a long way toward making things better. We can and should address this immediately.”

As the report notes, many middle- and lower-income Latino households currently have little incentive to contribute to retirement accounts – and may actually be penalized if they do so. Policies like the Saver's Credit, which was used by more than five million households in 2003, help to level the playing field for retirement savings incentives.