Understanding a client’s cultural background can help create a tailored retirement strategy
by Cecilia Stanton AdamsMs. Adams is Chief Diversity and Inclusion Officer, Allianz Life Insurance Company of North America. Visit www.allianzlife.com
Despite many people of color (POC) reporting feeling prepared for retirement, some of the steps they are taking to prepare for retirement may tell a different story. While everyone’s retirement strategy is different, it’s important for financial professionals to understand some of these major differences between groups of people may be due to their cultural background and experiences. By staying attuned to your clients’ cultural values you will have a better understanding of how to customize your approach for better results.
Findings from a new study* by Allianz Life shed light on the needs within this growing market, which found that despite feeling confident about their retirement prospects, POC also report limited retirement-focused investments and lack of progress toward achieving important retirement goals. But there may be more than meets the eye to this conundrum. For example, retirement solutions that were once only available to high-income earners are now more accessible by those representing the growing middle class. What’s more, people saving for retirement today may not share the same motivation or end goals as the traditional retiree. In fact, cultural differences like family structure, cultural norms around working, and even views on finances, will serve as a driver for what the new normal for retirement looks like in our increasingly racially and ethnically diverse country.
At the same time, the study found that less than a third (32%) of POC report currently working with a financial professional. These findings indicate a potential misinterpretation of their financial situation that may put POC’s retirement readiness at risk. So how can financial professionals seize this important opportunity to help POC develop a retirement strategy that works for them?
Understand How The View Retirement
Of course, we know that retirement looks different for everyone, but understanding different factors that can impact how POC think about retirement can be helpful. One issue that can’t be ignored are the well-documented racial and ethnic wealth and housing gaps. A study from the Urban Institute found white family wealth was seven times greater than black family wealth and five times greater than Hispanic family wealth in 2016. Already, POC may feel they are behind in their finances, and may feel the same way about their retirement strategy.
Also consider cultural norms to help you figure out what’s important to clients as they plan for retirement. For example, do they expect to move in with their children when they retire, or are they planning to live on their own? According to Pew Research, multigenerational housing situations are more likely to occur among Asian, Hispanic, and Black households, than white households.
At the same time, over half (52%) of respondents in the survey say they feel they have plenty of time to save for retirement, and 35% say retirement is too far away for them to worry about it. Is this due to putting off retirement planning, or do POC clients view traditional retirement age as too young to quit the workforce?
Asking these questions about when they see retirement starting, and what those years will look like can help you get a baseline understanding of a client’s perspective, and potentially how their culture is impacting it.
Hear Their Concerns
The study also found that many POC are worried about financial situations that may impact the way they are thinking about retirement. Some of these concerns include “having unexpected, large expenses to pay” (63%), “becoming a financial burden to your loved ones” (52%), “not having enough money to do all the things you want to do in retirement” (53%), and “not being able to stay in your home” (48%).
While these are all risks that you can help address as part of a solid retirement strategy, taking time to listen to these worries and understand them within the context of a client’s unique life and cultural experiences is important. Having this deeper level of understanding can help you truly understand their perspective, and better tailor their financial strategy.
Taking The Next Step
Understanding these cultural nuances and wealth gaps doesn’t happen overnight. Some of the very first steps are acknowledging that they exist, and doing your part to educate yourself on them. It’s a gradual and ongoing journey that requires patience and understanding. But in the long term, there is a huge opportunity to help POC address risks within their retirement and achieve the retirement they envision..
*Allianz Life conducted an online survey, the 2020 Retirement Risk Readiness Study, in January 2020 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.
The study was balanced and weighted on various demographic factors, including age, income, and race. The study is comprised of 84% of respondents who identified as white and 17% who identified as people of color (8% Black; 6% Asian; 1% Native American/Alaskan; 2% other).