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Minorities Raid Retirement Savings to Survive Recession Minorities Raid Retirement Savings to Survive Recession

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THE NEXT AMERICA

Minorities Raid Retirement Savings to Survive Recession

Blacks, Hispanics pulled money out of retirement accounts at a greater rate than whites, Asians.

While millions of people turned to their retirement accounts to make it through the Great Recession, a greater percentage of blacks and Hispanics did so, according to two recent studies from investment companies.  

Blacks were 55 percent more likely and Hispanics were about a third more likely to borrow money from their retirement accounts than their white and Asian counterparts, a report issued last month by the investment company Vanguard said.

Although blacks and Hispanics were more likely to take out a loan, they borrowed about the same amount of money from their accounts as whites and Asians.

USA Today reported last month that nearly 9 percent of African-Americans took hardship withdrawals from their 401(k) plans in 2010, up from 6.3 percent in 2007. By comparison, 1.7 percent of white workers took a hardship withdrawal in 2010, versus 1.1 percent in 2007, citing a survey by Ariel Investments and Aon Hewitt, a financial-services and human-resources company.

Unlike loans, hardship withdrawals are subject to taxes and penalties but do not need to be repaid. Employees are eligible for a hardship withdrawal if they meet certain requirements, including if they become disabled or lose their income, according to the Internal Revenue Service.

Borrowing money from a retirement account can be risky during an economic downturn.

If an employee is laid off or quits while carrying a loan balance, he or she must repay the borrowed amount in full, usually within 60 days.

Half of African-Americans and 40 percent of Hispanic workers carried a 401(k) loan balance at the end of 2010, compared with more than a quarter of whites and 22 percent of Asians, according to USA Today.

Eighty percent of African-Americans who leave their employers with a 401(k) loan outstanding default. The same is true from 76 percent of Hispanics and 71 percent of whites.

Investors who withdraw money from their retirement accounts lose out on any financial gains they would have earned if they had left the money in the retirement account, a spokeswoman for Vanguard said.

In April, more than 12 percent of blacks were unemployed, according to the Labor Department. Nearly 10 percent of Hispanics who wanted a job were without. The unemployment rate for whites was slightly over 7 percent. It was lowest for Asians, at 5.2 percent.

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