The pay gap and the wealth gap are among the many reasons African Americans enter retirement in poor financial shape, says Maya Rockeymoore, President of Center for Global Policy Solutions in Washington, D.C. Other explanations include financial literacy and investing habits.

The Pay Gap

“There is a pay gap when it comes to what African Americans earn when it compares to whites, even when you control for education,” says Rockeymoore. “We are starting with less.”

The hourly pay gap has widened to the worst in 40 years, according to the Economic Policy Institute (EPI) — a roughly 27% difference in 2015. Whites earned an average of $25.22 an hour vs. $18.49 for blacks, the EPI says. Declining unionization, the failure to raise the minimum wage and lax enforcement of anti-discrimination laws have contributed to the growing black-white wage gap, according to the EPI.

“We need to be having forums addressing labor-market decisions,” Rockeymoore says. Blacks are earning less than whites and it is not a reflection of talents or skills, she notes. “It is a reflection of discrimination in the labor market. We talk about the gender-pay gap, but we need to talk about the racial-pay gap.”

The Wealth Gap

According to the Federal Reserve’s Survey of Consumer Finances, in 2013, the median white household had $13 in net wealth for every $1 in net wealth of the median black household. Also, according to a Pew Charitable Trusts report, What resources do families have for financial emergencies, the typical white household has slightly more than one month’s worth of income in liquid savings, compared with just five days for the typical African-American household.

The Federal Reserve report said that whites are five times more likely to receive large gifts and inheritances than blacks and the amounts tend to be much larger for whites. “That is one of the main issues,” says financial planner Nick Abrams of AJW Financial Partners in Columbia, Md. “We [African Americans] are starting at ground zero every generation. That is hurting us financially.”

Rockeymoore agrees. “The wealth gap is serious,” she says, pointing to disparities between blacks and whites regarding employer-sponsored retirement plans.

“A significant number of us [blacks] are in jobs where we do not have access to pre-tax preferred retirement vehicles like 401(k) or 403(b) accounts,” says Rockeymoore. Many blacks work in small businesses where such plans frequently are not offered.

“If we do work in jobs that offer tax-preferred vehicles, we tend to not contribute at rates that whites do. And we take out loans out at higher rate,” adds Rockeymoore.

One solution, she notes, would be more access to such employer-sponsored plans.

Home ownership also plays a big part in the wealth gap. The typical white household aged 47 to 64 has housing wealth of $67,000; the typical household of color in this age group has zero home equity, according to the December 2016 report, Social Security and the Racial Gap in Retirement Wealth, from the National Academy of Social Insurance.

Debt can limit the ability to achieve other financial goals, especially retirement planning, too. “Among African American employees surveyed who are offered an employer-sponsored retirement account but contribute less than the employer match or do not contribute at all, 40% say that paying down debt is a higher priority for them than making retirement contributions, according to Prudential’s 2015-2016 African American Financial Experience.

Financial Literacy

There are also big differences in financial literacy between blacks and whites. Only one in 10 African Americans work with a financial professional compared with one in four white Americans, the Prudential report said.

“Many African Americans have had no history of someone who was a grandfather or someone who gave them some level of financial education in that household,” says James Brewer, president of Envision Wealth Planning in Chicago and president of the Association of African American Financial Advisors. “So, one of the challenges is around some level of financial education.”

Theodore Daniels, president of the Society for Financial Education and Professional Development agrees. “There has got to be more education. People have got to be willing to attend financial education workshops. Some people don’t know what they don’t know. Once they attend, they say ‘I can do this.’ If they are not educated, they are not comfortable making decisions, and they won’t do it,” Daniels notes.

African Americans Tend Not to Invest in Stocks

Some analysts also say that African Americans often shy away from investing in the stock market. “Whatever discretionary income we have, we tend not to invest in equities,” says Rockeymoore. “We don’t have a diversification.”

This may be due to a lack of comfort with the stock market.

“African Americans are risk-averse,” says Deborah Owens, a former Fidelity Investments vice president who calls herself America’s Wealth Coach. “So, one of the major reasons they have less in retirement savings is they are ultra-conservative, particularly African Americans who work in the public sector and nonprofit organizations.”

Owens says black investors typically focus on guaranteed or fixed investments that are low-risk or no-risk. As a result, their retirement funds aren’t compounding at a high rate of return.

According to the Federal Reserve, the average balance of African Americans in 401(k)s is only $23,000. And Social Security and the Racial Gap in Retirement Wealth found the average balance for African Americans in pensions and IRAs was $10,300, vs. $105,600 for white Americans.

Owens believes many African American workers don’t take full advantage of all the choices in their employer-sponsored plans because they don’t understand them. “The tendency to be risk averse is directly correlated to their lack of knowledge,” she says.

What Employers and Policymakers Could Do to Help

Brewer believes employers could play a bigger educational role.

“It is important for companies or organizations who have higher percentages of African American employees to realize that there are some differences, and they need to bring in people who have some cultural sensitivities to those differences, and come up with a plan to help those groups,” says Brewer.

He says African Americans need financial advice on issues such as having higher student loan debt than white counterparts and, often, a greater need to financially assist less affluent family members. Rockeymoore says African Americans, even in retirement, tend to support other family members, including children and adult children. Also, they are disproportionately taking care of grandchildren, making them unable to save more for retirement.

All in all, says Rockeymoore: “There needs to be a national campaign to encourage young African Americans to save and invest. Home ownership is the pathway to wealth. They [blacks] need to be educated in the homebuying process and also to diversify their investments to include stocks and bonds.”

McKernan believes policymakers also need to take action to close the racial retirement security gap. “This country is built on the premise that it provides economic opportunity,” she says. “But this country continues a history of discrimination and the result of that is passed from generation to generation.”