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Confidence in finances varies among minorities

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Edmundo Eduardo knows he's got a lot of catching up to do when it comes to saving enough for retirement.
"I think I'm way off, based on the needs that are happening today," said Mr. Eduardo of Euless, who recently was laid off from his job as a technician installing and repairing photocopiers.
Surveys to be released Tuesday found that minorities - particularly Hispanics such as Mr. Eduardo - feel less confident than whites about being adequately prepared for retirement.
When considering the American workforce as a whole, many workers feel confident about having enough money to live comfortably during their retirement years, according to surveys sponsored by the Employee Benefit Research Institute, the American Savings Education Council and sampling firm Mathew Greenwald & Associates.
But although workers have become more active in planning for retirement, they need to do more.
"The amounts that workers have accumulated for retirement are generally low, and many people appear to be falsely confident about their retirement security," the surveys said.
Among minorities, the feelings about being prepared for retirement stand out.
"In the aggregate, minority workers tend to be less confident than their white peers," said Paul Yakoboski, senior research associate at the Employee Benefit Research Institute in Washington, D.C., a nonprofit, nonpartisan public policy research organization.
Among minorities, Asians feel just as confident as whites about being financially prepared for retirement, he said.
Thirty-one percent of Asians surveyed felt "very confident" about having enough money to live comfortably throughout retirement.
Among African-Americans, 24 percent of those surveyed felt that way.
"Hispanics are the least comfortable," Mr. Yakoboski said.Nineteen percent of Hispanics felt very confident about their retirement savings.
"These things are going to be correlated to a degree with income levels and education levels," Mr. Yakoboski said.
Among respondents in the minority survey, 38 percent of Asians said they were college graduates, vs. 17 percent of African-Americans and 16 percent of Hispanics.
"In general, the better educated you are, you'll tend to have a higher income, and higher-income people tend to save more," Mr. Yakoboski said. "They're in a better position to do so."
Seventeen percent of people who identified themselves as Hispanics in the survey had total pretax household income of less than $15,000 in 1999, compared with 11 percent of African-Americans and 10 percent of Asians.
Eighteen percent of Asians in the survey said their income fell in the $50,000 to $74,999 range.
There are factors beyond income and educational levels that also influence how minorities feel about whether they have enough to retire comfortably, Mr. Yakoboski said.
"It's personal issues," he said. "It may even be to some degree cultural issues. What's your experience in dealing with financial institutions? How comfortable are you in doing that?"
Mistaken assumption
For Mr. Eduardo, it was a case of assuming that his employer would take care of him at retirement.
"I just thought that any company you joined - after you make 20, 30 years and you leave - you're going to have retirement with your pension plan," said Mr. Eduardo, 63, who worked for his employer for 21 years.
But his company didn't have a pension plan and only established a 401(k) retirement savings plan when he was about 56 years old. Before then, he didn't have a dime saved for retirement.
"I blame myself for not knowing that I should have questioned things like this, like how long do I have to work before I get a pension?" Mr. Eduardo said. "When I realized that there was not a pension on the job, that was when the 401(k) was brought to my attention.
"I put in as much as I could because at that point, I knew I was behind the eight ball."
It's understandable that Mr. Eduardo would take a pension for granted, said Jude Barcenas, his certified financial planner.
"In the past, retirement plans were almost guaranteed by the employer," he said. "All you had to do is to work there for many, many years and not even put in a single penny and yet you are guaranteed some sort of a retirement plan."
About 40 percent of all pension-covered workers in the private sector have traditional "defined benefit" plans in which an employer makes regular lifetime payments, down from 85 percent in the early 1980s, according to the employee benefit institute.
The fastest growing type of retirement plan is the "defined contribution" plan, such as 401(k)s in which employees, not the employer, decide how to invest their money.
With a defined contribution plan, there's no guaranteed payout, and the ultimate size of the nest egg depends on how well employees have allocated their funds and how well their investments have performed.
The increased responsibility for retirement planning has forced workers to look at how much they can afford to contribute to their retirement plan, Mr. Barcenas said.
"People perceive, 'I can only afford so much,'" he said. "It may not be enough."
Small businesses
A challenge that Hispanics face is that many work in the construction and service industries, and some of those companies are too small to have their own retirement plans, Mr. Barcenas said.
But that's changing.
Mutual fund companies such as Fidelity Investments are providing retirement plans for small businesses.
"In today's competitive labor market, offering a retirement plan can help give small businesses a needed edge in recruiting and retaining employees," said Peter J. Smail, president of Fidelity Institutional Retirement Services Co. "Technology and the Internet are making it easier and more cost-efficient for firms to implement retirement plans, and we are seeing a growing interest in them among small business owners."
Being a business owner plays a big role in why Asians feel the most confident among minority groups about retirement planning.
"A lot of them came here as professionals," Mr. Barcenas said. "There is another section of Asian-Americans who own their business, therefore they can look after their own concerns.
"Some of them know that someday they can sell that business and have a windfall profit."
Importance of education
Though he's more than willing to shepherd his clients through retirement planning, Mr. Barcenas says they should also do their part.
"One of the things I preach is education," he said. "They need to educate themselves in personal finance, they need to understand their own retirement program if they have one.
"I ask them, 'Do you know that the matching amount that your employer gives you is free money?'" Mr. Barcenas said. "If you only contribute 6 percent and your employer matches your 6 percent, you're putting in a total of 12 percent. Some of them don't even understand the matching concept. Some of them don't understand how their 401(k) can benefit their taxes."
For workers who feel they can't afford to put a little away for retirement, Mr. Barcenas has this response: Everyone can find the extra money if they cut out the fat.
"Some people are surprised that they're spending so much on movies or other areas like clothes - those items that do not give them growth," he said. "They look into that and see which areas they can cut to channel that savings into retirement plans."
For his part, Mr. Eduardo is getting a head start in trying to instill the savings temperament into his 24-year-old son.
"I'm already starting to drill him, based on what I went through," he said. "We all should take some active part in what our future is going to be."
Pamela Yip covers personal finance for The Dallas Morning News. If you have a story idea, e-mail her at pyip@dallasnews.com



By Pamela Yip / The Dallas Morning News

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