Fewer than one in five Americans is contributing to an IRA, potentially missing tax and savings benefits
NEW YORK, March 13, 2014 – More Americans spent less time in the last year planning for an IRA investment for their retirement years than choosing a restaurant, flat screen TV or tablet, according to an annual survey by TIAA-CREF, a leading financial services provider.
The survey was conducted by an independent research firm and polled a random sample of 1,008 adults nationwide on their attitudes, preferences and behaviors regarding Individual Retirement Arrangements or IRAs.
“An IRA can be an incredibly powerful savings tool that can boost retirement security and offer immediate tax and savings benefits. IRAs can also serve as a valuable supplement to an employer-sponsored plan and help fund a first home or education,” said Doug Chittenden, Executive Vice President, Individual Business at TIAA-CREF.
Despite these benefits, the survey found that fewer than one in five (17 percent) of those surveyed currently contribute to an IRA, a decline from 22 percent in 2012.The survey reveals that the number of Americans who would consider an IRA as part of their retirement strategy has fallen sharply since 2013. Fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013.
It is possible that a lack of understanding is responsible for low IRA contribution levels. More than one-third (35 percent) of respondents do not understand what an IRA is or the difference between an IRA and an employer-sponsored plan. This percentage is even higher among the Generation Y (age 18-34) population surveyed (45 percent).
“More and more people are unaware of the ultimate value an IRA can have in building a stable and secure retirement,” said Chittenden. “Americans today bear much more responsibility for their retirement savings than previous generations did. There is a pressing need to educate Americans from all age groups and income levels on the long-term retirement benefits that IRAs provide through compounded investment growth and tax savings.”
Even among those who already have an IRA, more than half (55 percent) said they spent an hour or less planning for the investment.
Sixty percent of those who are contributing to an IRA also have an employer-sponsored plan such as a 401(k) or 403(b). Among those with both plans, more than half (53 percent) say they contribute to their IRA regardless of whether they have reached the contribution or matching limit of their employer-sponsored plan. This means they could be leaving money on the table if they are diverting money to their IRA before contributing enough to get their employer match.
“Retirement planning can feel confusing and even overwhelming, but individuals should feel empowered to take charge of their financial future,” added Chittenden. “We encourage people to meet with a financial advisor and take advantage of online tools to learn about their options and help guide their savings strategy. Employers who sponsor retirement plans also play a critical role in helping educate employees about their retirement options.”
It is not too late for individuals to contribute to an account and potentially reduce their 2013 taxes. Americans can contribute as much as $5,500 ($6,500 for those 50 and older) for the 2013 tax year until April 15, 2014. If an individual has not previously made his or her 2013 contribution, he or she may contribute for both 2013 and 2014 – a total or $11,000, or $13,000 for those age 50 or older – between January 1 through April 15, 2014. (Learn more about age and income limitations on IRA contributions and deductions.)
For more information about the IRA survey, read the executive summary (PDF).
TIAA-CREF Offers a Variety of IRA Solutions
TIAA-CREF offers advice and guidance to identify which IRA investments are right for each individual, how much to allocate, and a customized plan to receive income during retirement. Thousands of investments are offered through TIAA-CREF Brokerage Services, including mutual funds, stocks, bonds, options, ETFs and CDs. Expenses on TIAA-CREF mutual funds and annuities are generally less than half the mutual fund industry average.1
TIAA-CREF has been offering personalized retirement plan financial advice since 2005 at no additional cost to clients of all income brackets and life stages. The company currently offers in-person financial services at more than 65 offices across the country, in addition to phone representatives who are licensed and trained to provide advice. These services provide individuals with a suggested asset class mix and investment recommendations on retirement plan assets, to support their success in reaching their retirement income goals.
For more information and tools for retirement planning, visit the TIAA-CREF Advice and Guidance Center.
The survey was conducted by KRC Research, a third-party research firm, by phone among a national random sample of 1,008 adults, age 18 years and older, between February 13 and 16, 2014. Interviews were conducted over both landlines and cell phones. The margin of error for the entire sample is plus or minus 3.1 percentage points at the 95 percent confidence level.
TIAA-CREF (www.tiaa-cref.org) is a national financial services organization with $564 billion in total assets under management (as of 12/31/2013) and is the leading provider of retirement services in the academic, research, medical and cultural fields.
1Based on Morningstar data, the expense ratio on all mutual fund products and variable annuity accounts managed by TIAA-CREF is generally less than half the mutual fund industry average. (70 percent are less than half their respective Morningstar Universe average and 60 percent are less than half their respective Morningstar Universe median.)
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.