Closing the gap: our economists agree that homeownership and retirement planning are a potent pair when it comes to building net worth

Black Enterprise, June, 2005 by Donald Jay Korn

So with homeownership as the best way to close the wealth gap between blacks and whites, what's the second rung on the wealth-building ladder? "No. 2 probably should be some kind of retirement account," says Jaynes. Even for twenty- and thirtysomethings, retirement planning can be crucial.

"Everyone knows that they need to have a job when they get out of school," says Sharon Epperson, personal finance correspondent at CNBC. "The other part, which is never talked about, is saving for retirement, even at a young age. Young people should be in a 401(k). Or, if they don't have a 401(k) through their company, in an IRA."

Although employer pension plans are less generous nowadays, there still remains one really good reason for putting money into an IRA or 401(k), according to Margaret C. Simms, vice president of the office for goverance and economic analysis at the Joint Center for Political and Economic Studies in Washington, D.C. "If there is a contributory plan, by making the effort to set something aside, you are gaining value right there."

If your employer is making a matching contribution, it's "free money," Simms says. "It's already there, and you don't have to do anything extra except sign up and do whatever it is you are supposed to do to make it happen. Even if it's less of a good deal than it used to be, it's still a pretty good deal, because it helps you out."

Singletary's advice to young people combines homeownership with retirement planning. "Coming out of school," she says, "you'll want to own a home, but, from day one, you ought to start retirement savings. Even after you're married and have children, college savings comes last. Your children can borrow to go to college but you can't borrow to live in retirement."

But even well-intentioned young people may have difficulty getting started saving through an employer's retirement plan. "I remember when I started working, a few years ago," says Jasmine Brown, 25, a high school teacher in Albany, New York. "I was given a bunch of papers about employee benefits, including the retirement plan, but no explanation or direction. It was overwhelming." Last year, when her husband, Markeith, 26, began working as a guidance counselor for the same school district, he had a similar experience.

Fortunately, the Browns persevered in their efforts to plan for retirement. They contacted Markeith's sister, Sharon Brown, a registered representative with William Tell Financial Services in Latham, New York. "They both are eligible to participate in a 403(b) plan, which is comparable to a 401(k)," says Sharon. "They also have opened up Both IRAs. Unlike a 403(b) plan, Roth IRA contributions will not give them any tax deductions. However, Roth IRAs can provide tax-free withdrawals after age 59 1/2."

For now, the Browns are making modest contributions to all of these retirement accounts, but they plan to increase those amounts as their careers progress and their incomes rise. "My coworkers have helped me to figure out my retirement plan," says Markeith. "One teacher, in fact, taught me while I was in school here. He's making a fairly large salary now so he can contribute a great deal to the 403(b), but he says he wishes he had started making contributions, even small ones, while he was in his 20s. Over time, the compound earnings can be enormous."