Boomer Retirements Likely to Boost IRA Share of Retirement Market

Total asset levels in the U.S. retirement market grew 9.6% from 2009 to 2010, totaling $15.8 trillion as of end of year 2010.

Cerulli Associates estimates total retirement markets to grow modestly (around 1%) to $16 trillion in 2011 with continuing market recovery, and will total nearly $22 trillion in 2016, according to the firm’s annual analysis of the retirement landscape. Total IRA assets represent 29.7% of total retirement market assets currently, and as large defined contribution (DC) plan rollovers continue to fuel asset levels, IRAs will encompass 33% of the total retirement market by 2016.   

“The decisions Baby Boomers make regarding DC plan balances as they enter retirement continue to greatly impact DC and IRA balances,” said Alessandra Hobler, analyst in Cerulli’s retirement practice. “While much of the industry has discussed in-plan retirement income solutions, few of these solutions have been implemented by DC plans. Since there has been little to entice Baby Boomers to stay in-plan, they continue to roll large balances into IRAs.”

The research explains that without action to prevent these distributions, rollovers will continue to fuel IRA assets, furthering their significant market share of the total market, beyond 2016.  

The major addressable segments of the DC market – 401(k), 403(b) and 457 – are expected to total just more than $4 trillion in 2011. The report said 403(b) markets are growing solidly propelled by new regulations and opportunities in healthcare markets.  

Cerulli also found: 

• Rollover dollars are split 65/35 between adviser-assisted and self-directed accounts, and;

• Among advisers, DC distribution is narrowing to specialists while the amounts these groups control in terms of assets is increasing. 

DC markets are buoyed by the continually simplified process of saving for retirement with features such as automatic enrollment, auto escalation and simplified investment options such as target-date funds. On the other hand, the shift away from private defined benefit (DB) plans will continue to decrease its market share. However, increased use of liability-driven investing (LDI) strategies is putting money into motion for asset managers, which presents interesting opportunities, Cerulli said.  

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