Lack of knowledge is the biggest obstacle preventing Americans from investing in an IRA, according to new research released Feb. 27 from the LIMRA Secure Retirement Institute (LIMRA SRI).
The study found only 34 percent of all Americans believe they are knowledgeable about IRAs, with men being far more likely to say they are knowledgeable about IRAs than women. Forty-two percent of men consider themselves knowledgeable about IRAs, compared with just 27 percent of women.
Of those who don’t own an IRA, nearly half (46 percent) felt they did not understand enough about IRAs to contribute to them.
According to LIMRA SRI, 41 percent of Americans own a traditional or Roth IRA, 32 percent own a traditional IRA, 19 percent own a Roth, and 9 percent own both. The research did not include similar questions about 401ks.
Older Americans are more likely to own traditional IRAs than younger Americans. Almost half (48 percent) of Silent Generation Americans (ages 73+) own an IRA, compared with just 3 in 10 Boomers, Gen X and Millennial Americans. This is not surprising, according to LIMRA SRI. Older Americans are more likely to own a traditional IRA because they are less likely to have had access to a defined contribution (DC) plan during their working years, or they have rolled over their DC plan assets into a traditional IRA after they retired.
Ownership of Roth IRAs is much more level across age groups. About 1 in 5 Boomers (19 percent), Gen X (19 percent) and Millennials (18 percent) own a Roth IRA, along with 1 in 6 Silent Generation (16 percent) consumers.
Forty-three percent of these consumers said they purchased a Roth IRA because their financial advisor recommended it. In contrast, only 23 percent of traditional IRA owners purchased their product because of an advisor’s recommendation.
Another important factor in Roth IRA owners’ decisions–cited by 3 in 10 respondents–is the desire for having a mix of pre- and post-tax retirement savings. Roth IRAs represent one of the only types of accounts where withdrawals of earnings (under specified circumstances) are not taxed.
The study finds interaction with an advisor or financial services company increases the likelihood that an IRA owner will make regular contributions to their IRA. According to the ICI, overall, only 34 percent of IRA owners currently make regular contributions to their IRA account. Among those who do make ongoing or regular contributions to IRAs, more than half (53 percent) had been approached by a financial services company or financial professional to set up regular contributions.
In a statement, LIMRA SRI noted it supports the America Saves Week campaign (held February 25-March 4, 2019), which encourages Americans to save money, reduce debt, and build wealth. LIMRA SRI suggests that this is the perfect opportunity for advisors to check in with their clients to ensure they are systematically saving for retirement and planning for their financial future.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
