Ignoring this source of retirement income underestimates Black Americans’ resources

Black Americans are better prepared for retirement than most studies indicate as the result of a common oversight: government pensions.

It’s an understandable flaw in study methodology. Only 15% of private industry workers have pensions, according to the latest data from the Bureau of Labor Statistics. Employers are more than happy to shift the responsibility for retirement income to employees, and started doing so as soon as tax-advantaged retirement accounts were legislated into being. Why should researchers focus on a dwindling source of retirement income?

Because pensions have faded in importance for everyone but Black Americans. In fact, they appear to be the only American demographic that still enjoys guaranteed income from their former employer. Here’s how it plays out.

Black Americans are better represented in government jobs than any other racial or ethnic group, comprising 18.7% of the federal workforce and 13.6% of the population.

(The federal workforce includes Latino, Asian and Native American employees at roughly the same rate as their presence in the U.S. population overall. White employees comprise 62.8% of the federal workforce. Overall, 14.6% of Americans work for some level of government, according to the Census Bureau.)

Pensions are, of course, integral to the federal employee benefit package. And 86% of state and local government workers have defined-benefit plans, according to the Bureau of Labor Statistics. (Some government employees also have access to individual retirement savings plans.) Meanwhile, Blacks make up 20% of active-duty Army personnel, and 23% of Postal Service workers, another two employers that offer pensions.

It all adds up to this: Many middle-class Black Americans don’t have to save much in retirement plans because they have government pensions. Studies that measure retirement readiness based mainly on defined-contribution plans do Black Americans, and the financial advisory and investment sectors, a disservice by failing to factor pensions into the equation.

For instance, a 2022 academic analysis of retirement wealth by ethnic and racial group cites lower accumulations in Black retirement plans as a barrier for Black Americans, “giving them much less flexibility in financing retirement.” That study lumps pensions in with other types of retirement saving, one of the researchers said. But in a different study, the same researcher broke out Black women's retirement resources in finer detail, revealing that 15% of Black women are due pensions, compared to 9% of Hispanic women and 14% of other women.

Financial advisors need to know the whole picture as they work with Black Americans. Studies that underplay the presence of pensions are misleading, at best, and complicate advisors' understanding of a market that deserves to be understood.

Lisa L. Martin, a lecturer with the financial advisory program at North Carolina Agricultural and Technical State University, is mystified by the chronic oversight.

“Growing up, everybody in my community wanted to get a government job because the pension was part of it,” Martin said of the Black families she knew as a child in Louisiana. “It’s how Black American baby boomers built the middle class.”

Ambitious Black Americans took advantage of the career paths assured by the Civil Rights Act of 1964, which hard-wired job responsibilities and commensurate pay into federal jobs. “That government job was going to protect me. It was a guarantee, almost, that I’ll rise up in the ranks,” Martin said, summarizing the prevailing perception of job and retirement security. “And they did.”

Now, with student debt disproportionately burdening Black students, the loan forgiveness attached to public service jobs (some governmental, some not) could spark a fresh wave of interest in that well-worn path. If so, these significant benefits are major factors in Black Americans’ approaches to building lifelong economic security, and need to be reflected in research, Martin said.

Indicators of retirement preparedness that don’t examine pensions as a discrete factor don’t tell the whole truth. More accurate, nuanced information about Black Americans’ financial health is essential for tackling deeply rooted racial wealth gaps. There are enough problems to solve — building home equity, growing small businesses, bridging pay gaps — without insinuating that all Black Americans are hopelessly behind on retirement security, too.