[Posted Feb. 20, 2008]

Retirement Without Financial Foresight Can Be Dangerous

By Rosaland Tyler
Assciate Editor
New Journal and Guide

     What’s next for millions of retiring black babyboomers, who struggled for many decades to join the middle class?
About a third of all black retirees plan to open a business or keep on working, according to a decade of surveys by Ariel-Schwab. Less likely to save even $100 a month, or to invest in stocks or mutual funds, many African Americans with upper-or-middle-class earnings often support people who do not live in their homes. Since studies show that blacks tend to pay more for many goods and services such as pay day loans and sub prime mortgages, many black babyboomers need to rethink every expense.

Jacques Cureton

     “The struggle is how do I create wealth and pay my bills at the same time?” said Hampton Roads financial advisor Jacques Cureton, a former Wall Street banker, who founded and heads Capital Concepts LLC.      “I would encourage anyone to look at their wealth in its entirety. Many African Americans often focus on retirement overlooking their overall wealth.”
      Put expenses in categories, like you do good and bad cholesterol in other words. To do so, rethink non-deductible interest and life insurance. Free up lazy dollars and rethink your mortgage’s species, advises Cureton, an associate professor at Tidewater Community College who also holds a doctoral degree in business from Hamilton University. He earned his master’s degree in finance at the New York Institute of Technology, and his bachelor’s degree in accounting at York College.
      But it’s easy to see why many blacks don’t spot the big picture before retiring. The march to middle-class status has often been an uphill journey for many blacks.

    It has been “marked by half steps, pauses and, for some, retreat,” according to the 10th annual survey on black investment habits by Ariel-Schwab, titled “black paper.”
      So the average income for middle-and-upper income black retirees amounts to about $73,000, compared to $210, 000 for whites, according to annual surveys prepared by Charles Schwab Investment and Ariel, a Chicago-based, black-run mutual fund company. The two companies have prepared these surveys since 1998.

      Further, blacks who earn at least $50,000 a year on average save about $48,000 compared to $100,000 for whites. And, many blacks do not participate in a retirement plan, other studies show. black investors often focus on real estate investments when it comes to retirement.
More likely to also invest in real estate, more blacks than whites own real estate other than their home (42 percent compared with 33 percent). Another interesting fact: many blacks do not save or invest; because they are too worried about meeting day-to-day expenses.
    Helping an elderly parent or sending a child to college is a good thing, said Lisa Toppin, director of human resources and diversity programs for Schwab.

 
     “The challenge for our community is that many blacks have made it into the middle class but will very likely be retiring into the lower class. If we can retire at all,” Toppin said.
A recent Heinz Foundation survey supports her claim. It found that 71 percent of the African-Americans responding were “very concerned” about having enough for retirement. Another 75 percent—black women this time—said they had no money saved for retirement.
      So retirement anxieties are high among many African Americans. To reduce the pressure, rethink your spending mindset experts advise. Why do you spend? How much does $1 really cost you? Rethink everything especially wealth building, advises Cureton who has been in the insurance and financial services industry for more than 20 years.
     “The value of a home, pension, IRA and social security is what most people focus on,” Cureton said. “But they have no control over it.” However you can control (minimizing) the amount of taxes you pay, as well as interest that is non-deductible, and buying the right kind of life insurance.
     “Many times I find people have the wrong type of mortgage. How do you manage the asset differently from the liability?” asked Cureton, who moved to Hampton Roads a decade ago with his wife, Karine, a dentist. They have three children.
What you do control is your (spending-and-saving) mindset, in other words. “So someone 40 or younger should focus on growth and taxes. There are ways to grow wealth,” he said.
      Try to wrap your mind around a financial term called “opportunity cost,” Cureton advised. It means “for every dollar you spend, it could have been spent somewhere else. Once you understand that, the decisions you make will be different.”
      Take a fancy restaurant dinner, for example, or a weekend getaway to an amusement park. What are the hidden costs? Will you spend more than the bill the waiter presents? Will you spend more than the price of admission? Think of hidden fees. Then spend.
      Once you grasp the (opportunity-cost) concept, it changes your behavior, Cureton said. Specifically, rethink each purchase, putting in a good or bad category. “In other words, if I spend this dollar it will have to have meaning beyond this purchase,” to be good Cureton explained.
     “So make data-driven decisions. Let’s look at your spending,” he said. Most people underestimate how much they are spending. What is your income before taxes? What are your assets and liabilities? Once you have that data it paints the big picture.
     “If someone is (financially) lost it’s because they either don’t know, or don’t want to know where they are going. The first is the easiest to resolve. ‘I know my income and fixed expenses. So with that information I can go to a financial planner.’
     “But financial planning is a lifelong endeavor,” he added. “If trust is not cultivated on both sides—between the client and the advisor—then you have this chess match going on rather than relationship building.
     “And the relationship between the client and the advisor will determine the altitude of your own success. Try to find someone who is competent, as well as someone who cares. Then the discussion will change.”
      Finally, expect to live longer—17 years on average for those who retire at age 65, according to a study from Fidelity Investments. Expect bumps in the road. A typical couple faces an average of $215,000 in health-care costs once retired.
     “The babyboomers are about to retire in historic numbers,” Huffington Post writer Mellody Hobson wrote, in The Looming Retirement Crisis in the African-American Community. “We are not ready.
     “I don’t lose sleep about a lot of things,” Hobson wrote. “But the retirement crisis facing middle-and upper-income African Americans makes me a certified insomniac.”
    
    

To read other stories, subscribe to the New Journal and Guide.