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

MAISHA AND ERIC DAVIS MADE A MAJOR move last year, literally and financially. "We bought our first home, a three-bedroom house in Baltimore. it's in a quiet neighborhood, with a big yard where our children can play. It's a good feeling, knowing that it's ours," says Maisha, 30, "we're no longer throwing away money on rent."

Just a few years ago, the dream of homeownership seemed out of reach for the Davises. "We had some credit problems in our past," says Maisha. "When we applied for a mortgage, there were still some blemishes on our record, so the transaction fell through."

In early 2004, though, Maisha's employer sponsored a seminar for first-time home buyers. (Both Maisha and Eric, 34, are social workers for nonprofit organizations.) "I was pleasantly surprised to learn how many different financing options there are," says Maisha. "If your credit is in order, it's easier than you think to get a mortgage and buy a house."

But not enough black families are buying homes, causing an ever-widening wealth gap between whites and African Americans in the U.S. According to the National Urban League, which recently released its annual State of Black America report, the homeownership rate for African Americans is nearly 50%, versus more than 70% for whites. This disparity in homeownership is reflected in net worth as well: a median of 56,100 for an African American family compared to 567,700 for white families.

Wealth-building strategies were the topic at a March meeting of the BLACK ENTERPRISE Board of Economists. The consensus among the BE board is that homeownership is the key to obtaining wealth.

"The net worth that was reported for white families is mostly home," says Michelle Singletary, personal finance columnist for The Washington Post. "It's not money in the bank. Homeownership is the key, in terms of obtaining wealth. People buy homes, keep them, or trade them. When they retire, they sell their homes, and that's where their money comes from."

Homeownership, especially for young people, can be the foundation of wealth building, according to Gerald D. Jaynes, a professor of economics and African American studies at Yale University who is also on the board. "Homeownership is one means of starting," he says. "And it is probably the most important means, because it is going to be the most important asset for 95 out of 100 people."

But that step isn't as steep as it may seem. "A lot of people think that they have to save up 20% of the price of their ideal house," says BE board member William Spriggs, senior research fellow at the Economic Policy Institute in Washington, D.C. "They think, 'I have to have 5100,000 [to buy a 5500,000 home], and I don't have anything like 5100,000, so I'm never going to own a home.' They just role it out."

But there is help available. 'There are a lot of first-time home buyer programs now," says Singletary, "and a lot more loan products, but many of those are for people who have good credit scores."

Which leads to another key point: "You can't overemphasize, particularly for young people, the importance of good credit," says Thomas D. Boston, president of the Boston Research Group Inc. "If you have clean credit, you can get almost a 100% loan. There are many ways that you can get into a house, but you can't do it if you don't have established credit."

Your creditworthiness will be measured by a credit score, and not all credit is created equal. "Having a bank credit card is OK," says Spriggs. "However, if you have a department store credit card, you lose points from your credit score."

Existing homeowners should have their house appraised at least every other year, according to Boston. "A lot of people who buy a house are like people I know who buy art," he says. "They think that just because they own some art, it's going to automatically zoom up in value. However, it may go nowhere."

Many African Americans are missing out on the benefits enjoyed by families that have home equity they can tap into to pay for college costs, home improvements, or to help the next generation obtain their own homes. But not the Davises, who bought their home for $140,000 with 100% financing.

"Our home recently was appraised at $175,000," says Maisha, "so we're planning to refinance our loan. We'd like to pull out some of that home equity and use it for improvements, such as upgrading the bathrooms and installing central air-conditioning. Now that we're homeowners, we've become more proactive about taking care of our property."

Appraisal costs vary, from $100 and up, depending on the size of the house. "If you do that every other year, you'll have a good idea of how much equity you are building in that house," Boston says.

By improving their home, the Davises are taking another vital step toward building wealth for themselves and their children.

If more African American families experienced what the Davises have, seeing a $35,000 increase in home equity in less than a year, that $6,100 median net worth would be much greater.

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."

Spriggs agrees that sooner is better when it comes to retirement savings. "Money you put in early counts a lot more than the money you put in late," he says. "You get punished if you wait, in any retirement savings plan. You get so much from the compounding, from those first investments while you're young, that those investments far outweigh anything that you do later on."

In addition to retirement cash flow from their Both IRAs and their 403(b) accounts, the Browns may get pensions if they stay in the Albany school system long enough, and they might receive Social Security retirement benefits several decades from now. "We've been following the news reports on Social Security," says Jasmine, "and we hope there will be something there for us. Even so, we're making our own plans and taking actions now to increase our chances of enjoying a comfortable retirement."

Simms says the current debate over Social Security has people thinking more about retirement. "You need to plan," she says, "whether Social Security is there or not. People are realizing that they need to think about how much they really must have if they expect to live well beyond retirement."

GET RICH, ONE MILESTONE AT A TIME

"Wealth building is not a one-time event," says Marc Wright, a financial consultant with AXA Advisors in New York. "It's an ever-changing process. Your present situation might not be the same in six months or a year, so you need to be able to adapt."

Nevertheless, you should have a basic game plan if you're going to accumulate sufficient assets to provide a comfortable lifestyle for you and your loved ones. You can tweak your plan over time, but if you begin with a roadmap, you're more likely to move in the right direction. Wright's firm provides this timetable:

WHEN YOU GET YOUR FIRST "REAL" JOB

[check] Start a savings account to build a cash reserve of at least three months worth of living expenses.

[check] Start a retirement fund and make regular monthly contributions, no matter how small.

WHEN YOU GET A RAISE

[check] Increase your contribution to your company-sponsored retirement plan

[check] Invest after-tax dollars in municipal bonds that offer tax-exempt interest.

[check] Increase your cash reserves.

WHEN YOU GET MARRIED

[check] Determine your new investment contributions and allocations, taking into account your combined income and expenses.

WHEN YOU'RE PREPARING TO BUY YOUR FIRST HOUSE

[check] Invest some of your non-retirement savings in a short-term investment specifically for funding your down payment, closing, and moving costs.

WHEN YOU HAVE CHILDREN

[check] Increase your cash reserves.

[check] Increase your life insurance.

[check] Start a college fund.

WHEN YOU CHANGE JOBS

[check] Review your investment strategy and asset allocation to accommodate a new salary and a different benefits package.

[check] Consider your distribution options* for your company's retirement savings or pension plan. You may want to roll over money into an IRA.

WHEN ALL YOUR CHILDREN HAVE MOVED OUT OF THE HOUSE

[check] Boost your retirement savings contributions.

[check] Review your potential estate tax liability with your financial adviser, attorney, and tax professional.

WHEN YOU REACH AGE 55

[check] Review your retirement fund asset allocation to accommodate the shorter time frame until you start accessing money from your retirement plan.

[check] Continue saving for retirement.

WHEN YOU RETIRE

[check] Carefully study the options you may have for taking money from your company retirement plan. Discuss your alternatives with a financial professional and tax adviser.

[check] Review your combined potential income. Afterward, reallocate your investments to help provide the income you need while still providing for some growth in capital to help beat inflation and fund your later years.

* KEEP IN MIND THAT WITHDRAWALS MADE PRIOR TO AGE 59 1/2 ARE TAXED AS ORDINARY INCOME AND MAY BE SUBJECT TO A 10% FEDERAL PENALTY.