Bank Scam | Retirement Inequality

Financial Freedom

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A commercial caught my eye the other day which watch one of the games during march madness. It was about retirement inequality. And featured an all black cast dancing to music while a voice over was talking something to the effect of “half of all black Americans do not have enough to retire”. The ad was run by #retireinequality foundation which has a paid partnership with TIAA Bank. So basically the commercial was for a bank. It got me curious so I decided to do some research and went to their website.

Retirement Crisis

The first thing I noticed on the website was that they mentioned that there is a retirement crisis in America. Which I find very amusing that they call it a crisis since it has only become common in human culture in the past 100 years. So 99% of the rest of human civilization would see retirement as a luxury. So to say that there is a crisis within a luxury like retirement is a bit of stretch.

Gender Retirement Gap

The next thing I noticed is that they mention a gender retirement gap. That women have 30% less median retirement income than men. This statistics they mention is also quite amusing because your gender has nothing to do with you retirement income. Your return on investments, like retirement investments, are not impacted any different if you are a man or a women.

Your retirement income is entirely dependent on how much you save, invest, and your investment decisions. So if you don’t save a lot of money for retirement, you won’t have a lot for retirement. If you do save a lot for a retirement, well you have a lot for retirement. It is really that simple. There isn’t a retirement vehicle that has a 30% women tax on it. That would be ridiculous.

What they are eluding to is that the median woman in America earns less than the median man in America. Thus the amount of money they have to put into retirement is less. Thus their retirement income is less. But what they forgot was they study of income differences between men and women is a single variate study. What’s that?

Single Variate Analysis

A single variate analysis is when you look at single variable a see how a change in that variable effect the dependent variable you are trying to study. In this case, the variable they are looking at is gender, which is a dummy variable. You are either a male or female. And the dependent variable is retirement income (or really median income, because that is how they are basing retirement income off of).

This is how they conclude that women make $0.82 on the mans dollar. Or the 30% gender retirement gap. But this is a horrible study because it is a single variate analysis. The best way to get an understanding of how an independent variable (gender) effects a dependent variable (income) is to do a multivariate analysis. Great, what’s that?

Multivariate Analysis

Very similar to a single variate analysis a multivariate analysis just has more than one independent variable. So instead of just looking how gender effects income. We look at how gender, education, experience, hours worked, type of job, danger of job, time of day worked, vacation days taken, etc…

Doing a multivariate analysis gives a better understanding how what variables actually have an effect on the dependent variable. As it turns out when you do a multivariate analysis on income, gender become almost insignificant. The gap reduces to $0.01 – $0.02. Psychologists believe that small income gap between the genders is due to women being more agreeable on average than men.

Agreeableness is one of the big 5 personality traits. And on average women tend to score higher on this scale. So women would be less likely on average than men to ask for a raise. They would more likely ‘agree’ with the current wage they are earning. While men not be as likely to ‘agree’ with their current earnings.

Basically there gender income gap is basically insignificant and the retirement income is entirely based on how much to save, invest, and what you invest in. Not your gender.

Black American Retirement

The big statistic that they show on their website is that “54% of black Americans don’t have enough savings to retire”.

How did they get this number?

Well they got it from a study from Center for Retirement Research at Boston College. It is a study to find discrepancies of Americans that are at risk in retirement between races. The first thing I noticed about this study is that TIAA got the statistic wrong. The website says “54% of black Americans don’t have enough savings to retire” while the actual stat is “54% of black Americans are at risk of inadequate retirement income”.

It is a slight but significant difference. This is because of the way the study determines who is at risk.

Determining Who Is At Risk

The at risk percent is determined based off of the percentage of Americans whos projected retirement income is greater than 10% below target retirement income at the age of 65. Projected retirement income is based on how much you have saved and invested currently for retirement plus future compound growth. Target retirement income is based on your current level of consumption at the age of 65. So if your current saving + investments + future compound growth will generate less income than 90% of your current level of consumption you are considered at risk. So 54% of black Americans fall into that category.

Why is this a bad way to calculate that? Because 64% of all Americans are living paycheck to paycheck. This means that 64% of all Americans are living above their means. Or have a higher level of consumption than they can afford. So we are basing target level of retirement income on current level of consumption. Which for a majority of Americans is larger than they can afford, while they have a job. So assuming that when they retire that those same people can afford the same level of consumption is foolish.

A better way to determine target retirement income is based on what your current level means of living based on your income. So not on your consumption level but on what you can afford to consume based on income. Because we know that Americans consume more than they can afford.

Why Black Americans?

Why is TIAA choose to only mention black Americans? From their commercial and website they are implying that there is a difference in retirement between black Americans and other races. Otherwise why would they mention race? But when you look at the study they got their statistic from, yes 54% of black Americans are at risk, but also 48% of white Americans, and 61% of Hispanic Americans. So there isn’t a large discrepancy like they are implying.

In fact, white American who are at risk adds up to roughly 111 Million people. While black Americans is roughly 22 Million. So if you were concerned about helping the most amount of Americans at risk in retirement and wanted to break it up by race for some reason you should really target you ad at white Americans. It is a 5x larger audience.

I have two theories on why TIAA Bank targeted black Americans in their commercial. One is virtue signaling and the other is selling annuities.

Virtue Signaling

Simply put TIAA targeted black Americans in their commercial to signal to everyone that they are virtuous. And that if you were a good virtuous person you would bank with TIAA. Mentioning black Americans, especially statistics about black Americans, really pulls on the heart strings. More than any other race in America.

This has become a common tactic within business to virtue signal. Most recent common virtue signaling tactic include changing their logo to the trans flag or Ukrainian flag. Or tweeting common phrases like ‘End Racism’. None of these things actually take on any action to make the world a better place. But instead it signals to everyone that you are good person because you ‘support’ trans people, or Ukraine, or are against racism. Those might not even be their actual stance on the issue, but it doesn’t matter as long as they look good to the public.

Annuities

Down the rabbit hole we go. Selling annuities is my second possible reason for why TIAA is targeting black Americans in their commercial.

Without going too much into details about annuities this is how they work. It is a way for guaranteed income each month in retirement that is fairly recession proof. So you buy an annuity and the bank gets your money. In return the bank will pay you a guaranteed amount each month until you die. You are better off in retirement if you get annuity the longer you live. And worse off if you die shortly after retirement.

So banks would want to target people who retire and die shortly after. This removes them from paying a lot in annuity payments. And thus they would want to avoid annuity for people who retire early and live a long life.

The average American lives until 77. So the bank are looking for groups of people who on average don’t make it to 77. Turns out that black Americans life expectancy is 71. So by targeting annuities to black Americans they can save themselves on average 6 years of annuity payments. And if we break it down even more black male Americans live on average to 68. Which means if they retire at 65 banks would pay annuity payments for only 3 years. That is a steal for the banks. That is their ideal customer for annuities.

White women for example have an average life expectancy of 85, that is 20 years on average of annuity payments. Compared to 3 for black male Americans. I think that there is no way TIAA Bank didn’t take this into consideration on who they should target in their commercial.

Conclusion

This commercial and website by #retireinequality foundation and TIAA Bank is very misleading and has a true possibility of being malicious to black Americans. Even though the whole idea behind the ad looks to be helping black Americans. It is important to remember not to take statistics at face value and always double check and do you own due diligence. It is incredibility easy to lie.