How prepared for retirement are you? A recent study from LIMRA Secure Retirement Institute finds that only 17 percent of American workers currently contribute to a traditional individual retirement account (IRA) – and only 28 percent contribute to any kind of IRA.
LIMRA uncovered the top reasons why American workers did not contribute to a traditional IRA.
Top reasons for not contributing to an IRA:
· Cannot afford to contribute = 42 percent
· Saving for retirement in other ways = 24 percent
· Have other saving priorities = 16 percent
· Uncertain how to invest = 14 percent
· Haven’t gotten around to it = 13 percent
Nearly a quarter say the reason they are not contributing to an IRA is because they are saving in another retirement saving vehicle, like a defined contribution (DC) plan.
Additionally, one third of workers believe they don’t understand enough about IRAs to contribute to one.
“We were surprised to find that 85 percent of workers had never been approached by a financial services company or advisor about setting up an IRA,” said Cecilia Shiner, Assistant Research Director at LIMRA. “For workers who don’t have access to an employer-sponsored DC plan, an IRA provides an excellent way for workers to save for retirement.”
“Our research indicates that there is a significant market opportunity for financial advisors and companies who help these consumers better understand and invest in an IRA,” Shiner said.
The study revealed that more than a third of Generation X workers are contributing to an IRA (34 percent) while only one quarter of Millennials and Boomers are.
According to the study, 40 percent of workers would be more likely to contribute to an IRA if a payroll deduction option were available through their employer. Nearly half of Millennials said payroll deduction would spur them to contribute.
“Previous research has shown that employers are concerned about their employees’ retirement prospects,” Shiner said. “Offering an auto-IRA through the workplace could encourage workers to systematically save and improve their financial security in retirement.”
LIMRA Secure Retirement Institute found that workers who own an IRA are more likely to feel confident that they will be able to live the retirement lifestyle they desire (55 percent) compared with just 24 percent of those who don’t own an IRA.
A traditional IRA allows workers to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (i.e., no investment gain is taxed until the money is withdrawn).
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