IRA Retirement Contributions Sputter
Only one in ten IRA investors make contributions, a study shows.
July 30, 2010— -- A new study that looked at 6 million holders of traditional Individual Retirement Accounts has found the vast majority aren't making any contributions, prompting some retirement experts to sound a warning bell about a looming crisis.
The Washington, D.C.-based Investment Company Institute, using data from 2007 and 2008, found that only 11 percent of IRA investors made contributions in 2007. Even fewer investors, just 9.4 percent, made contributions in 2008.
"The ICI study reveals a symptom of a larger problem, and that is as a country we're not saving enough for retirement," said Doug Orton, an associate vice president in the retirement services practice of Boston-based MFS Investment Management. "Individuals are not saving enough. Local governments that sponsor defined benefit plans aren't putting enough aside. Social Security is underfunded. There has to be a wake-up call at some point. Most people have no idea what they even need to retire."
Sarah Holden, coauthor of the study and the ICI's senior director of retirement and investor research, stressed a number of factors that help explain the low level of IRA contributions among people with active accounts.
According to Holden:
*Other ICI survey information indicates roughly two-thirds of traditional IRA-owning households also have some form of defined contribution plan, mainly 401k plans, in which they may be actively participating. "A lot of people use the IRA purely as a place to park rollover assets from a retirement plan at a former employer," Holden said.
*The 2007-08 period examined also happened to be a difficult time for the economy and the stock market.
*Confusion over IRA rules may prevent people from participating. For example, people aged 50 or older could contribute up to $5,000 to a traditional IRA in 2007; in 2008, because contribution rules are pegged to inflation adjustments, someone 50 or older could put in up to $6,000. Additionally, rules over what portion of contributions are tax deductible are tricky, and can vary, depending on a person's income, marital status, and on whether they also participate in an employer-sponsored retirement plan.
