Data & Research March 19, 2015

Traditional IRAs Get Cold Shoulder from Workers

Just 17% of American workers contribute to a traditional individual retirement account (IRA), according to a survey by LIMRA Secure Retirement Institute.
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LIMRA’s report found only 28% contribute to any kind of IRA, such as a traditional IRA—which allows workers to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred—or a Roth, or SEP/SIMPLE. The commonest reason given for not contributing was affordability (42%). Nearly a quarter said they were saving in another retirement plan, such as a workplace-sponsored defined contribution (DC) plan.

One in seven said they were uncertain how to invest assets or hadn’t gotten around to it. One-third of workers believe they don’t understand enough about IRAs to contribute to one.

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Surprisingly, says Cecilia Shiner, assistant research director at LIMRA, 85% of workers had never been approached by a financial services company or adviser about setting up an IRA—an excellent way to save for retirement for those without access to a DC plan. “Our research indicates that there is a significant market opportunity for financial advisers and companies who help these consumers better understand and invest in an IRA,” Shiner notes.

More than a third of Generation X workers are contributing to an IRA (34%) while only a quarter of Millennials and Boomers currently are. According to the study, 40% of workers would be more likely to contribute to an IRA if a payroll deduction option were available through their employer—and nearly half of Millennials said payroll deductions would spur them to contribute.

“Previous research has shown that employers are concerned about their employees’ retirement prospects,” Shiner says. “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 with an IRA are likelier to feel confident that they will be able to live their preferred retirement lifestyle (55%), compared with just 24% of those who don’t own an IRA.

“Understanding IRAs: Worker Behaviors and Attitudes” can be accessed through LIMRA’s site.

Data & Research March 19, 2015

Younger Workers Lack Feeling of Control over Retirement

Nearly half of Americans younger than 30 (49%) do not feel in control of determining their retirement date, according to the latest COUNTRY Financial Security Index survey.
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Among this group, nearly one-third (31%) say that their retirement date is “not at all” in their control.

Reaching a savings goal is the number one concern Americans have regarding their ability to retire, especially among those younger than 30. Nearly half (49%) of Americans feel not saving enough could be the greatest setback on their path to retirement. This number rises to 55% for those younger than 30.

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“Fear of the unknown is understandable, younger Americans may be jaded by the slow recession recovery and uncertainty surrounding social security,” says Joe Buhrmann, manager of Financial Security Field Support.

Saving and choosing a retirement age are vital retirement-planning steps, but factoring in how long you will live during retirement should also be added to your plan, according to Buhrmann. People may not be adequately estimating how long they will live in retirement. The majority of Americans (69%) anticipate living more than 15 years in retirement; however, 26% of those younger than 30 anticipate living 30 years or longer in retirement.

"Your retirement plans includes saving, choosing a realistic age and then predicting how long you will live; all three steps are reliant on each other," says Buhrmann.

The survey found the majority of retirees say living the retirement dream is achievable. Many envision an early retirement, but waiting correlates with higher retirement satisfaction, perhaps due to the ability to save longer.   Retirees ages 65 and older are significantly more likely (79%) to say they are living the retirement of their dreams. Early retirees ages 50 to 64, are much less likely (51%) to say they're living their dream retirement.

Retirees with a higher income are also more likely to say they're living the retirement of their dreams, although satisfaction does not rise exponentially with income. Among those with a retirement income of $50,000 to $75,000, a large majority (82%) are living their ideal retirement. Retirement satisfaction peaks among those with a retirement income greater than $75,000 but less than $100,000, with 91% of individuals in this income group living the retirement of their dreams.

The COUNTRY Financial Security Index was created by COUNTRY Financial and is compiled by GfK, an independent research firm. Surveys were conducted using GfK's KnowledgePanel, a national, probability-based panel designed to be representative of the general population and includes responses from approximately 1,000 U.S. adults for national surveys.

Survey data, videos and analysis are available at www.countryfinancialsecurityblog.com.

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