A new report from the Investment Company Institute finds that with $6 trillion in assets at year-end 2013, traditional IRA investors had only modest reaction to financial stresses.
Specifically referring to dramatic declines in stock values between October 2007 and March 2009, a recession (December 2007 to June 2009), and rising unemployment rates, authors Sarah Holden, ICI senior director of retirement and investor research, and Steven Bass, ICI associate economist, found that contribution and rollover activity declined only a bit in the wake of the financial crisis.
The authors further note that although relatively few traditional IRA investors contribute to their traditional IRAs in any given year, those that do contribute tend to do so in multiple years; this tendency persisted even from 2008 to 2013. Withdrawal rates rose slightly between 2008 and 2013, but still only a small fraction of younger traditional IRA investors took money out of their traditional IRAs.
The report also finds that traditional IRA investors’ allocation to equity holdings fell, on average, although some of the change merely reflects market movement rather than investors’ rebalancing.
For example, it notes that among consistent traditional IRA investors aged 25 to 59:
- About three-quarters of their traditional IRA assets were invested in equity holdings—which includes equities, equity funds, and the equity portion of balanced funds—at year-end 2007, and about two-thirds of their traditional IRA assets were invested in equity holdings at year-end 2012.
- The share of traditional IRA assets invested in equities for consistent investors aged 25 to 59 then rose slightly to 72.6 percent at year-end 2013.
- Between year-end 2007 and year-end 2013, few traditional IRA investors changed to or from equity concentrations of zero or 100 percent of their traditional IRA balances. A significant minority of consistent traditional IRA investors had all of their traditional IRA balances invested in equity holdings; only slight net movement away from that full concentration occurred between year-end 2007 and year-end 2013.
The movement of traditional IRA balances reflected the impact of investment returns; investors’ contribution, rollover, and withdrawal activity; and the rules governing traditional IRAs.
Although account balances fell considerably following the stock market decline in 2008, the average traditional IRA balance for traditional IRA investors aged 25 to 69 with account balances in all years between 2007 and 2013 was significantly higher at year-end 2013 than at year-end 2007. The change in traditional IRA balances reflects contributions, rollovers, withdrawals, and investment returns.
Traditional IRA investors in all age groups except for those 75 or older saw their account balances increase on average between 2007 and 2013. Beginning at age 70½, individuals are no longer eligible to make contributions to traditional IRAs and typically must begin to take withdrawals, putting downward pressure on account balances among older traditional IRA investors. Increased Roth conversion activity in 2010 also may have put downward pressure on average traditional IRA balances.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
