5 steps to grow retirement confidence in the Hispanic community

The face of families in the United States of America is changing as the country grows more diverse. According to the 2020 U.S. Census, Hispanics represented one-in-five people in the U.S. And Hispanic population growth was the largest of any demographic.1

Yet Hispanic household wealth is not keeping pace. In 2019, Hispanic families typically held $38,000 in wealth. This did represent a 60 percent increase from 2016, when families had $24,000 in wealth. But the 2019 figure is still only 21 cents on the dollar when compared to white families.2

The picture becomes even more serious when you consider retirement. One study found that four out of five Hispanic families have less than $10,000 in retirement savings.3 Retirement accounts such as an IRA or 401(k) are rare for this population — only eight percent have one. Experts cite both a lack of access and a lack of financial education as the reasons for so little participation in these types of accounts. In fact, Hispanic households are 17 percent less likely than white households to have access to such an account.4

But it does not have to be this way. Through financial education and strategies for saving, the Hispanic community can begin meeting retirement with greater confidence. These five steps can help you develop a plan to achieve your long-term retirement goals.

1) Get informed

It’s hard to plan for something if you don’t know enough about it. Financial topics are rarely covered in school, and many people are raised in families where they do not talk about money. It can even be a taboo topic. These conditions make it hard for people to develop basic financial literacy.

Cultivating financial literacy is crucial not only for developing a long-term strategy and better financial habits, but also for passing on financial skills to the next generation and the community at large.

You may feel like you don’t know the right questions to ask or where to begin. Thankfully, this is where a trusted financial professional can help. How do you find the right financial professional? Asking your family and friends who they work with can be a good place to start. Interview 2-3 financial professionals to see who you are most comfortable with. Once you’ve found your trusted financial professional, they are available to answer questions specific to your situation and your long-term goals. Then they can work with you to customize a strategy to help you get there, and they can connect you to resources for developing your own financial literacy.

2) Seek experience beyond a Certified Public Accountant (CPA)

Working with a CPA to file your taxes can be very beneficial. They have an important area of specialty, but it’s sometimes not the whole picture. For instance, they work to make your annual tax burden as low as possible, and yet some may miss certain long-term strategies, such as lowering your taxes through putting money into a retirement savings account. A financial professional can help you create a long-term financial strategy for your unique situation. They can also help you develop good financial habits that can last a lifetime.

If you’re hesitant about spending money on a financial professional know this, 63% of the most financially confident people, work with a financial professional. It’s one of the behaviors that financially confident workers do differently.5

3) Know the pros and cons of different investments

There are several ways to invest your money, but not all options are created equal. For example, it’s common to think that the shortest path to wealth is through buying real estate. And yes, owning property can be a stable and lucrative investment over time. But it may not always be the best strategy. Being a property owner may sometimes also have downsides.

Consider this: you’re a business owner. Your business does well, and as you generate more income, you decide to buy a rental property. The tenants’ rent will cover the property loan, as well as provide you with an additional $1,000 per month. This simple calculation seems like a green light, but it leaves out many variables. You will need to maintain the building, which can get expensive. You’ll have to pay property taxes. Plus, your tenants may default on the rent or otherwise be difficult to manage. Now the property distracts you from growing your business. And what if you have to sell it at a loss?

A scenario like this does not always happen, but it can. In the example above, the business owner may be better off investing the extra money into an interest-bearing retirement account. They may get a good return on their money, save on taxes and stay focused on their business. With this in mind, a financial professional can help you weigh the benefits of different investment strategies.

4) Invest sooner rather than later

A key concept in basic financial literacy is the power of compound interest. When you put money into a retirement account, it can earn interest in the first year. Going into the second year and beyond, the interest from the first year will also earn interest — it compounds. As a result, the earlier you invest, the more opportunity you give your money to earn compound interest over time.

It can be hard to make use of this strategy without financial education or the guidance of a financial professional. Sometimes, for example, people buy a home and feel an urgency to pay off their mortgage as soon as possible. But, depending on your income, it can be wiser to steadily pay a mortgage while getting related tax benefits. If you have extra income, rather than accelerate your mortgage payments, you can consider investing the money in a retirement account where it will earn interest. If you wait fifteen years to invest — or until the mortgage is paid — you miss out on fifteen years of compound interest.

5) Be patient

Much like how compound interest builds value over time, long-term investment strategies require patience. Too often people chase what they think will make them rich. This can happen in a variety of ways, including with the stock market. If you invest money into a stock portfolio, and the market drops, you may be tempted to take your money out. But if you do, not only will you lose that money, you’ll also lose the opportunity to recoup the loss, which is likely temporary. People tend to make these decisions with their emotions in mind rather than their long-term financial health.

Working with a financial professional will help you take the emotion out of investment decisions and stay focused on the long term. Remember: optimal financial returns are usually the result of good information, patience and time. Through adhering to these steps and partnering with a financial professional, Hispanic families can reach retirement age with greater savings — and confidence.

 

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

2022-143350 Exp. 9/24